Agenda Document Pack - Audit Committee - 30/09/2024
Midlothian Council · 30 September 2024
Back to Audit Committee — 30 September 2024 and its agenda
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Notice of Meeting and Agenda Audit Committee Venue: Council Chambers/Hybrid, Midlothian House, Dalkeith, EH22 1DN Date: Monday, 30 September 2024 Time: 14:00 Executive Director : Place Contact: Clerk Name: Democratic Services Clerk Telephone: Clerk Email: democratic.services@midlothian.gov.uk Further Information: This is a meeting which is open to members of the public. Privacy notice: Please note that this meeting may be recorded. The recording may be publicly available following the meeting. If you would like to know how Midlothian Council collects, uses and shares your personal information, please visit our website: www.midlothian.gov.uk Page 1 of 182
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1 Welcome, Introductions and Apologies 2 Order of Business Including notice of new business submitted as urgent for consideration at the end of the meeting. 3 Declaration of Interest Members should declare any financial and non-financial interests they have in the items of business for consideration, identifying the relevant agenda item and the nature of their interest. 4 Minute of Previous Meeting 4.1 Minute of Audit Committee 24th of June 2024, submitted for approval 3 - 14 4.2 Action Log 15 - 16 5 Public Reports 5.1 Midlothian Council Workforce Innovation: How councils are responding to workforce challenges, report by Audit Scotland, External Auditors 17 - 50 5.2 Scottish Fiscal Commission: Fiscal Update, report by Chief Financial Officer 51 - 102 5.3 Internal Audit Work to September 2024, report by Chief Internal Auditor 103 - 120 5.4 Audit Committee Annual / End of Term Report 2023/24, report by Chair of the Audit Committee 121 - 140 5.5 Risk Management Update – Strategic Risk Profile Quarter 1 2024/25, report by Chief Officer Place 141 - 182 6 Private Reports No items for discussion 7 Date of Next Meeting The next meeting will be held on 29th of October 2024, at 10am. Page 2 of 182
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Minute of Meeting Audit Committee Date Time Venue Monday 24 June 2024 11.00am Council Chambers/Hybrid Present: Councillor Milligan (Chair) Councillor Bowen via MS Teams Councillor McEwan Councillor Smaill Councillor McCall In Attendance: Grace Vickers Chief Executive Alan Turpie Legal and Governance Manager/Monitoring Officer Kevin Anderson Executive Director Place Morag Barrow Director of Health & Social Care: Midlothian HSCP / Chief Officer to Midlothian IJB Derek Oliver Chief Officer Place Saty Kaur Chief Officer Corporate Solutions David Gladwin Chief Financial Officer/S95 Officer Duncan Stainbank Chief Internal Auditor Robert Dick Audit Scotland Janet Ritchie Democratic Services Officer Hannah Forbes Assistant Democratic Services Officer Audit Committee Monday 30 September 2024 Item No 4.1 Page 3 of 182
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1. Welcome and Apologies for Absence The Chair welcomed everyone to the meeting. 2. Order of Business The order of business was as detailed in the agenda previously circulated. 3. Declarations of interest No declarations of interest were intimated at this stage of the proceedings. 4. Minute of Previous Meeting 4.1 The minute of the meeting of 18 March 2024 was submitted and approved as a correct record. 4.2 The Action log was submitted and noted. In responding to comments regarding Hillend, the Chief Internal Auditor advised that an update is provided under item 5.1, Internal Audit Work to May 2024 on page 24 of the Agenda pack and advised that a more detailed report was sent to management, and that this will be provided to all Elected Members. 5. Public Reports Report No. Report Title Submitted by: 5.1 Internal Audit Work to May 2024 Chief Internal Auditor Outline of report and summary of discussion The purpose of this report was to provide members of the Audit Committee with details of the recent work carried out by Internal Audit and the findings and recommended audit actions agreed by management to improve internal controls and governance arrangements. The Internal Audit Annual Plan 2023/24 was approved by the Audit Committee on 7 March 2023. Internal Audit has carried out work associated with the delivery of the plan to meet its objective of providing an opinion on the efficacy of the Council’s risk management, internal control and governance. The Chief Internal Auditor in presenting this report highlighted the main sections as contained within the report and outlined the three final assurance reports on the following subject: • Payroll (Appendix B) • Destination Hillend Water Pipe Delays (Appendix C) • Education Software (Appendix D) Page 4 of 182
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The Audit Committee is recommended to: a) Consider the Executive Summary of the final Internal Audit assurance report issued associated with the delivery of the approved Internal Audit Annual Plan 2023/24; b) Note the Internal Audit Consultancy and Other Work carried out in accordance with the approved Internal audit Charter; and c) Acknowledge the assurance provided on internal controls and governance arrangements in place for the areas covered by this Internal Audit work. The Chair thanked the Chief Internal Auditor for the report and opened it up to questions. In responding to questions regarding the maintenance and indemnity against steel if anything breaks down on the Alpine Coaster, the Chief Internal Auditor advised that it was only a 1-year contract as the contractor responsible for building the coaster had the contract for the other lifts on site and this was due for renegotiation therefore following the 1 year it was the intention to bring that into the main renegotiations. Further questions were raised with regards to the revised capital expenditure and the maintenance expenditure, in response the Chief Internal Auditor advised that there is no current change to the committed cost that the Council put down on the original business case however as the main building is being looked at a new and revised business case would come back to Council. The Chief Financial Officer confirmed that the Council was proceeding with the Alpine Coaster, that an updated business case and revised proposal would be brought back to Council and advised that with regards to the maintenance that would depend on the nature of the maintenance whether capital or revenue expenditure. The Executive Director, Place provided an update on the timescale of this opening and explained some the reasons for the delay due to Scottish Water and confirmed that the Council would be looking at some form of compensation for this delay from Scottish Water. Decision The Audit Committee noted the recommendations set out in the report. Action Chief Internal Auditor Page 5 of 182
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Report No. Report Title Submitted by: 5.2 Counter Fraud Annual Report 2023/24 Chief Internal Auditor Outline of report and summary of discussion The purpose of the report was to make the Audit Committee aware of the Council’s counter fraud responsibilities and the activities of the Integrity Group and Corporate Fraud team in liaison with other services over the past year as part of the arrangements to tackling fraud at the Council. The Chief Internal Auditor highlighted the main sections as contained within the report advising that the key items were outlined in appendix 1 and 2 of the report. The Audit Committee is recommended to: a) Consider the counter fraud work undertaken during the year to 31 March 2024 in support of the Council’s counter fraud policy and strategy; and b) Note the outcomes of the counter fraud activity 2023/24. The Chair thanked the Chief Internal Auditor for the report and opened it up to questions. There followed a discussion regarding Blue Badges, and these being used inappropriately, and concerns were raised on the continued use after the death of the holder. It was noted in this the period 2021 and 2022/2023 was during covid and there were also changes to death notifications that these could be reported to any office in Scotland therefore it may be that the information did not filter through. It was also highlighted that this is not just an issue in Midlothian. Further comments were made with regards to blue badges and if the blue badge could be surrendered when registering a death and it was noted that registering a death is done online and therefore this would be difficult to implement. The Chief Internal Auditor advised that it would be investigated as to what powers the Council has in asking for blue badges back and how this can be implemented. The Chair also commented on the issues with the blue badges and that these figures are probably relevant to places like London but not Midlothian and acknowledged there may be one or two people who misuse the blue badge but most people when losing a loved one will dispose of the blue badge. The Chief Internal Auditor in responding to a comment provided an explanation on housing fraud and the close work between the Internal Audit Team and the Housing Service in identifying housing fraud. A further question was raised with regards to the system used by the Council for fraud detection and it was highlighted that some Councils in England use automated systems which can immediately identify fraudulent claims. The Chief Internal Auditor advised that they were aware of some of these systems, but these are used in larger local authorities and that the National Fraud Initiative provides the data matching system at a limited cost to the Council. Page 6 of 182
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A query was also raised whether Midlothian had an issue with people making false declarations when a family member went into nursing care and the Chief Internal Auditor advised that unfortunately the last two rounds of the National Fraud Initiative did not include care home residents’ data due to data protection concerns but there may be a change in the law to allow future rounds to include the care home data. Decision The Audit Committee noted the recommendations set out in the report. Action The Chief Internal Auditor Report No. Report Title Submitted by: 5.3 Internal Audit Annual Assurance Report 2023/24 Chief Internal Auditor Outline of report and summary of discussion The Chief Internal Auditor presented this report. The purpose of this report was to present to the Audit Committee the Internal Audit Annual Assurance Report for the year to 31 March 2024 which includes the Chief Internal Auditor’s independent assurance opinion on the adequacy of Midlothian Council's overall control environment. The Audit Committee is recommended to: a) Consider the Internal Audit Annual Assurance Report 2023/24 (Appendix 1), and assurances contained therein; and b) Provide any commentary thereon, including any further actions required by Management. The Chair thanked the Chief Internal Auditor for the report and there being no questions or comments raised the recommendations were noted. Decision The Audit committee noted the recommendations set out in the report. Action Report No. Report Title Submitted by: 5.4 Draft Annual Governance Statement 2023/24 Chief Executive Outline of report and summary of discussion The Chief Executive presented this report. The purpose of this report was to propose that the Audit Committee considers and approves the draft Annual Governance Statement that will be published in the Council’s Statement of Accounts 2023/24. Page 7 of 182
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Midlothian Council is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. The Council’s Local Code of Corporate Governance that was approved by Council on 23 March 2021 was used to assist with the annual assurance process 2023/24. The Chief Executive outlined the main sections as contained in the report highlighting that Item 4.6 outlines that it is the Chief Executive’s opinion that reasonable assurance can be placed upon the adequacy and effectiveness of Midlothian Council’s systems of internal control and governance. The Audit Committee is recommended to: a) Consider the details of the draft Annual Governance Statement 2023/24 at Appendix 1 to ensure it reflects the risk environment and governance in place to achieve objectives, and acknowledge the actions identified by Management to improve internal controls and governance arrangements; and b) Approve that it be published in the Council’s Statement of Accounts 2023/24, noting the requirement for the final Annual Governance Statement to be signed by the Chief Executive and Leader of the Council at the conclusion of the external audit process. The Chair thanked the Chief Executive for the report and opened it up to questions. In responding to a question regarding previous procurement issues and that the number of detailed recommendations by Internal Audit were completed, the Chief Executive confirmed that a report was brought back to the Audit Committee at that time that confirmed that all those actions were completed and that all the internal controls and governance is built into the Internal Audit Plan to give assurances that all internal controls put in place are operating effectively. Decision The Audit Committee approved the recommendations set out in the report. Action Report No. Report Title Submitted by: 5.5 Internal Audit Shared Service Arrangement Continuation Chief Executive Outline of report and summary of discussion The Chief Executive presented this report. This report provided the Audit Committee with the appraisal of the first 18 months of the shared service arrangement for the Chief Internal Auditor between Midlothian and East Lothian Council. Page 8 of 182
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The significant budget savings that have been delivered within the Internal Audit and Counter Fraud team over the 18month period whilst continuing to deliver a service that meets the requirements of the Public Sector Internal Audit Standards (PSIAS). The Chief Executive outlined the main sections as contained within the report and highlighted the three recommendations to the Audit Committee. a) Note the agreement of Midlothian Council Executive team and East Lothian Council Executive team have agreed following the, 18-month initial period, to the continuation of the Chief Internal Auditor shared service on an ongoing basis. b) Approve the Continuation of the Chief Internal Auditor Shared Service between Midlothian and East Lothian Council on an ongoing basis. c) Note that flexibility will be considered as part of the ongoing annual planning process for Internal Audit to widen the agreement to the potential sharing of Internal Audit and Counter Fraud resource staffing when the potential allows. The Chair thanked the Chief Executive for the report and opened it up to questions. In responding to a question raised with regards to Councillors ability to raise subjects of concerns and accessibility of the internal audit reports to members of the public, the Chief Internal Auditor confirmed that all internal audit reports are available under Freedom of Information request and available to this committee unless there are any confidential elements which would require to be removed. The Chief Internal Auditor further advised on the sharing of resource between the two audit teams and that this will be highlighted within the internal audit plans or reports to the committee where it is the intention to do that and confirmed that this was for internal looking flexibility rather than the ability to enquire. Decision The Audit Committee approved the recommendations set out in the report. Action Chief Executive Report No. Report Title Submitted by: 5.6 Strategic Risk Profile Q4 2023/24 Chief Officer Place Outline of report and summary of discussion The Chief Officer Place presented this report. The purpose of the report was to provide Audit Committee with: • An update on the risk responses Midlothian Council has implemented during Q4 2023/24 to respond to the current risk climate. • Assurance that Midlothian Council took a proportionate and planned approach to prepare and respond to the current risk climate. Page 9 of 182
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• The risk evaluation of current strategic risks and opportunities for the Council. The Audit Committee is recommended to note the current risk landscape and organisational response to the most significant risks in Quarter 4 (Q4) 2023/24 (1 January to 31 March 2024). The Chair thanked the Chief Officer Place for the report and opened it up to questions. The Chief Officer Place responded to a question regarding infrastructure of systems pertaining to climate change and the ability of the drainage systems to cope with the excessive rainfall confirmed that the Climate Action Plan and a report on the Climate Change and flooding will be brought back to Council in August. A further question was raised with regards to the overspend on the winter maintenance budget and the Chief Officer Place provided an explanation on the increase in salt charges and highlighted the three storms over the winder period. A further comment was expressed with regards to the winter budget had not been used much for snow periods this year and the possibility of a category for severe weather, the Chief Officer advised that operational consideration could be given to a risk and budget for severe weather and weather episodes. Decision Audit Committee noted the recommendations as detailed in the report. Action Chief Officer Place Report No. Report Title Submitted by: 5.7 Annual Treasury Management Report 2023/24 Chief Financial Officer / Section 95 Officer Outline of report and summary of discussion The Chief Financial Officer presented this report. The purpose of the report was to inform members of the Audit Committee the Treasury Management activity undertaken in 2023/24 and the year-end position. The Audit Committee is invited to consider this report before the final report is presented to Council. Committee should note that the proposed recommendation to Council is that it note the Annual Treasury Management Report 2023/24. The Chair thanked the Chief Financial Officer for the report. Decision The Audit Committee noted the recommendation. Action The Chief Financial Manager Page 10 of 182
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Report No. Report Title Submitted by: 5.8 Scotland’s Public Finances: Challenges and Risks Chief Financial Officer & Section 95 Officer Outline of report and summary of discussion The Chief Financial Officer presented this report. The purpose of this report was to provide Audit Committee with sight of the Accounts Commission Local Government in Scotland Financial Bulletin 2022/23 published in January 2024, which is appended to this report, and opportunity to consider how key messages and recommendations in the report are embedded in ongoing Council work. The main messages in the report include funding challenges through real terms reductions and ring-fencing, balancing of budgets becoming increasingly reliant on savings, one-off measures and use of reserves, an increase in Council earmarked reserves and an extremely challenging financial outlook. The Audit Committee is recommended to: • Consider the Accounts Commission report; and • Note the Council’s position in relation to the key messages. The Chair thanked the Chief Financial Officer for the report and opened it up to questions. In responding to a request to bring back a report to this committee on funding costs on statutory services which are not fully funded for, the Chief Financial Officer provided an explanation on the funding mechanisms for the Council and that it would be difficult to identify which statutory services are underfunded. However, with regards to balancing the budget gap with income and expenditure officers are looking at a number of options which will include statutory provision in individual services in addition to those that are currently in the transformation blueprint, and this may assist in delivering some of the information required regarding statutory services. The Chair advised it would be helpful to highlight some of these areas of high spend for the Council to deliver services without the funding. The Chair also highlighted the growth of this Council and lack of capital funding and that there may come a time when Councils across Scotland will be unable to deliver statutory services. It was noted that the Chief Financial Officer will try to highlight the most offset costs that are underfunded. Decision The recommendations were noted, and it was agreed that the Chief Financial Officer will explore highlighting the most offset costs that are underfunded. Action The Chief Financial Officer Page 11 of 182
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Report No. Report Title Submitted by: 5.9 Unaudited Annual Accounts 2023/24 Chief Financial Officer & Section 95 Officer Outline of report and summary of discussion The Chief Financial Officer presented this report. The purpose of this report was to outline material changes in the value of net assets as of 31st March 2024 and to facilitate Audit Committee consideration of the Council’s unaudited annual accounts for 2023/24. In accordance with the Local Authority Accounts (Scotland) Regulations 2014 set out in section 3.2 of this report and specifically sections 8 (9) and 8 (10), Audit Committee are asked to consider the unaudited annual accounts for 2023/24. The Chief Financial Officer will then sign the accounts as Section 95 Officer on the statement responsibilities as detailed on page 18 of the Unaudited Annual Accounts 2023/24, they will then be published on the Council’s website for a statutory period of public inspection. The Chief Financial Officer explained that the second stage of governance is scheduled for Audit Committee on 23 November when the Audit Committee will be asked to approve the Audited Accounts prior to sign off by Council Leader, Chief Executive and the Chief Financial Officer as the Section 95 Officer. The Chief Financial Officer was happy to take any question offline or anytime over the summer months. The Chair thanked the Chief Financial Officer for the report and that this would be helpful to allow members to go through this and opened it up to any questions. In responding to a question raised on the pension fund and the fundamental change, the Chief Financial Officer explained that as part of the work that the Lothian Pension Fund done was to look at the long term position of the pension fund relative to some of shorter term positions of the employer’s contributions and as party to the Lothian Pension fund discussions was assured that the long term view was the principle view and the short term view to reduce the employer’s contribution rates sat in line with long term view. Decision The Audit Committee noted the contents of the report and that the Chief Financial Officer would be available to answer any questions regarding the Unaudited Annual Accounts for 2023/24. Action The Chief Financial Officer/Section 95 Officer 6. Private Reports No items for discussion Page 12 of 182
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7. Date of Next Meeting The next meeting will be held on Monday 30 September 2024 at 2pm. The meeting terminated at 11.57. Page 13 of 182
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Audit Committee Action Log No Date of Meeting Item No and Title Action Action Owner Expected completion date Comments 1 5.1 Treasury management 06/12/2022 Session with members to be organised with regards to Responsible treasury management/ethical issues. Chief Financial Officer Ongoing Carry forward, paper coming forward regarding CSG and ethical depositing coming later in the year. 2 5.8 Scotland’s Public Finances: Challenges and Risks 24/06/2024 Explore highlighting areas of high spend that are underfunded for service delivery if possible. Chief Financial Officer & Section 95 Officer Ongoing Recommend for closure: Will be included within Medium Term Financial Strategy reports where information is available. Audit Committee 30th of September 2024 Item No 4.2 Page 15 of 182
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Midlothian Council Workforce Innovation: How councils are responding to workforce challenges Audit Committee Monday 30 September 2024 Item No 5.1 Page 17 of 182
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Error! No text of specified style in document. | 2 Contents Key messages 4 Scope of the audit 6 1: Workforce strategy and priorities 8 3: Flexible working and other innovative staff deployment 15 4: Developing future skills and capacity 22 5: Joint workforce arrangements across services and partners 26 6: Measuring the impact of workforce planning 28 Appendix 1: Improvement action plan 30 Page 18 of 182
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4: Developing future skills and capacity | 3 Key facts Workforce 2022/23 4,990 Number of people working for the council: headcount 4,000 Number of people working for the council: full time equivalent 1,375 Number of casual/off payroll staff 10.4% Turnover of staff in last year 11 days Days lost due to absence in last year per employee 8.60% 29.70% 35.80% 25.90% Midlothian Coucil Staff Age Profile (%) Age 16-24 Age 25-39 Age 40-55 Age 56+ Page 19 of 182
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4: Developing future skills and capacity | 4 Key messages 1 Midlothian Council is the fastest growing local authority in Scotland and is one of the six Councils which comprise the Edinburgh and South East of Scotland City Deal. This growth Deal has five main themes: Research, Development and Innovation, Housing, Integrated Regional Employability and Skills, Culture and Transport. Midlothian Council, recognising the skills required for the future has invested significantly in digital skills through both the opening of the Councils first Centre of Excellence in Digital and the roll out of the £10.5 million Equipped for Learning programme. 2 In 2022, the Council approved a new Transformation Blueprint which defines what services the Council will provide in the future, where these services will be delivered and by whom. The Blueprint is divided into five main themes of which theme 2 focuses on the creation of a 21st Century workforce. 3 The Council is currently developing an organisational workforce strategy and plan for the three-year period 2024-2029 and is expecting to have this approved by committee in late 2024. Work is ongoing to ensure the strategy and plan support delivery of the council’s priorities which are set out in the Transformation Blueprint. 4 The new digital strategy will be presented to Council in October 2024. The Council has already realised workforce benefits through its successful implementation of Microsoft 365 and the use of digital technology in education services. The council is continuing to explore how the use of digital initiatives can further improve processes. 5 The council has launched a new customer services platform to promote channel shift. Key benefits of this include an improved customer journey, faster response times for service requests, helping to reduce complaints and duplication of work. The Customer Service Platform project is a 4 year programme which commenced in 2022. Nine modules were live by June 2024, with a number of modules in planning and test phase (over 40) to go live in the remainder of 2024/25. 6 The council’s Hybrid Working Policy was approved in 2023. Hybrid working provides flexibility for staff and is promoted by the council as a non-financial benefit for employees. It is worth noting that most of the Council’s workforce are front facing but for those who have a role that can be delivered in a hybrid way, the Council recommends and supports this way of working. As the policy is embedded and hybrid working practices are fully adopted, supported by the Page 20 of 182
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4: Developing future skills and capacity | 5 rollout of digital tools such as M365, then the council will be able to assess the overall impact of hybrid working at an organisational level. 7 The council has maintained the Healthy Working Lives Gold Award for over nine years and continues to explore new ways to support employee wellbeing. A revised Wellbeing Strategy was launched in early 2024 following consultation with Trade Unions. Progress on the delivery of the themes within the Wellbeing Strategy are reported through quarterly performance reporting to Cabinet and Performance, Review and Scrutiny Committee. 8 Capacity and recruitment issues are significant challenges for the council with shortages being experienced in several key services including education, digital, procurement and social care and social work. The council and the Health and Social Care Partnership have introduced a number of initiatives to improve capacity and skills for their existing and future workforce. Careful consideration has been given to providing opportunities for young people and the unemployed and Employment/Job Fairs are delivered by the People and Partnerships Directorate to promote work opportunities available at the Council and with local partners. 9 The council shares services with and roles with other councils. The workforce benefits of these arrangements have still to be captured or quantified. Page 21 of 182
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4: Developing future skills and capacity | 6 Scope of the audit 1. The 2023 Local Government Overview (LGO) notes that councils have never faced such a challenging situation. Service demands have increased after the Covid-19 pandemic and funding is forecast to reduce in real terms. Workforce pressures including recruitment in a competitive labour market, employee retention and high sickness absence levels are putting councils under continued pressure. 2. This report sets out how the council is responding to current workforce challenges through building capacity, increasing productivity and innovation. 3. The Accounts Commission’s Strategy (2021-26) sets out its priorities to focus on inequalities, funding, communities and recovery. The Code of Audit Practice 2021 sets out the Best Value work required to report on these priorities. Code of Audit Practice 2021 Best Value reporting requirements Extract from the Code of Audit Practice 2021 The Accounts Commission’s approach to Best Value involves reporting on individual local government bodies and thematically across the local government sector through performance reports: • As part of their integrated wider-scope annual audit work appointed auditors use a risk-based approach to assess and report whether the audited body has made proper arrangements for securing Best Value and is complying with its community planning duties, including reporting progress against previous Best Value findings and recommendations. • The Accounts Commission also requires the Controller of Audit to report to the Accounts Commission on each council or Integration Joint Board (IJB) at least once over the five-year audit appointment on the body’s performance on its Best Value duty. This enables the Accounts Commission to make findings for improvement where appropriate. • The Accounts Commission reports nationally on thematic aspects of local government bodies’ approaches to, and performance in, meeting their Best Value and community planning duties. Local government appointed auditors report locally on any such Best Value thematic work prescribed by the Accounts Commission. Page 22 of 182
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4: Developing future skills and capacity | 7 4. This report covers the thematic aspect of the Best Value audit requirements. The Accounts Commission has directed auditors to report on workforce innovation and how councils are responding to workforce challenges. In carrying out the work auditors have considered the following questions: • How effectively are the council’s workforce plans integrated with its strategic plans and priorities? • How effectively has digital technology been used to support workforce productivity and improve service quality and outcomes? • How effectively is the council using hybrid and remote working and other innovative working practice such as a four-day week to achieve service and staff benefits? • What innovative practice is the council using to develop its future workforce capacity and skills needs and manage staff reductions in line with its priorities? • What progress has the council made with sharing roles or functions across its services and/or with other councils and partners? • How effectively is the council measuring the impact of its workforce planning approach? 5. An improvement action plan is included at Appendix 1 of this report setting out audit recommendations in key areas, and the council’s planned response including responsible officers and dates for implementation. 6. The coverage of the work is in line with the expectations for councils’ arrangements for the seven Best Value themes in the Local Government in Scotland Act 2003, Best Value Statutory Guidance 2020. Page 23 of 182
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4: Developing future skills and capacity | 8 1: Workforce strategy and priorities Midlothian is the fastest growing council area in Scotland. The council is expected to see a further growth rate between now and 2028 of 13.8% compared to the Scottish average of 1.8%. The growth in population will increase pressure on services and the council needs to ensure it has the workforce it needs to meet current and future demands. 7. Workforce planning involves identifying and addressing future capacity and skills gaps, at operational and leadership levels. It requires strategic thinking, comprehensive workforce data and ongoing consultation and engagement with staff and trade unions. 8. A council focused on achieving Best Value will have a workforce strategy that sets out expectations on how the local authority’s staff will deliver its vision, priorities and values. 9. To be effective, workforce planning must be integrated across the organisation. Workforce strategies need to support the council in achieving its strategic priorities. They must support other key plans including financial, asset, digital and transformation planning. They need to be under-pinned with detailed workforce plans within services. 10. Midlothian is the fastest growing council area in Scotland with a 16.1% increase in population between 2011 and 2022; this level of growth is 13.4% higher than the Scottish average of 2.7%. Growth is particularly acute in the 0- 15 and over 75 age groups bringing significant additional demand for council services. 11. The council is expected to see a further growth rate between now and 2028 of 13.8% compared to the Scottish average of 1.8%. The growth in population will increase pressure on services and the council needs to ensure it has the workforce it needs to meet current and future demands. 12. Midlothian Council is one of six Councils which comprise the Edinburgh and South East of Scotland City Deal. This growth Deal has five main themes: Research, Development and Innovation, Housing, Integrated Regional Employability and Skills, Culture and Transport. Midlothian Council, recognising the skills required for the future has invested significantly in digital skills through both the opening of the Councils first Centre of Excellence in Digital and the roll out of the £10.5 million Equipped for Learning programme to equip its citizens with the skills required to benefit from the region’s ambition to become the Data Capital of Europe. The Council also has an ambitious green house building programme and is working together with the Midlothian Energy Training Page 24 of 182
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4: Developing future skills and capacity | 9 Academy in order to ensure that the workforce is developing the green skills required as the Council makes its transition to a net zero county. Midlothian Council approved a Transformation Blueprint in 2023. One of the key themes of this blueprint is the creation of a 21st Century Workforce. To support this, the Council is currently developing an organisational workforce strategy and plan for the three-year period 2024-2029 and is expecting to have this approved by committee in late 2024. 13. In 2023, the Council approved a new Transformation Blueprint which defines what services the Council will provide in the future, where these services will be delivered and by whom. The Blueprint is divided into five main themes of which theme 2 focuses on the creation of a 21st Century workforce. This theme focusses on digital transformation and human resource management to automate a wide range of tasks to free up the human workforce to undertake tasks which can only be carried out by people. 14. Midlothian Council recognises the ongoing challenges faced when filling vacancies with suitably qualified or experienced staff, and as a result, this is identified as a risk included in the Council strategic risk profile and service level risk registers. Workforce is a standing item on the three weekly Corporate Management Team agenda, and the strategic risk profile is scrutinised quarterly through the Chief Officer Risk and Resilience Group, Corporate Management Team and at meetings of the Audit Committee. 15. The council is currently developing an organisational workforce strategy and detailed plans for 2024-2029. This work is expected to be complete and approved by committee in late 2024. Work is ongoing to ensure the strategy and plan support delivery of the council’s priorities which are set out in the Transformation Blueprint document 2024-2027. 16. A governance framework has been established comprising a Business Transformation Board (BTB) which consists of the Senior Responsible Officers who lead on a series of sprints, each with a senior responsible officer. The BTB reports to a Business Transformation Steering Group (BTSG) consisting of elected members, chaired by the Council Leader. Developing workforce plans to support the Transformation Blueprint is proving challenging due to resource constraints and a lack of baseline data. 17. Audit Scotland’s Local Government Overview (LGO) report 2023 highlights that workforce planning requires sufficient capacity and skills, strategic thinking and comprehensive workforce data. Page 25 of 182
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4: Developing future skills and capacity | 10 Recognising the need for a strategic framework to ensure the work is properly planned, co-ordinated and documented, the Council appointed a new Strategic Lead for Human Resources in December 2022 to take this work forward. 18. The Human Resources (HR) and Organisational Development Team is led by the HR Strategic Lead (appointed in December 2022) and comprises 2.8 FTE HR Business Partners (each aligned to one of the Council’s three Directorates), 1 FTE Policy Officer, 1 FTE OD Officer, 1 FTE Lead Job Analyst, and 1.8 FTE Investigation Officers. This team supports an overall council workforce of around 4,000 full time equivalent. There was a gap in recruiting the HR Strategic Lead following the departure of the previous HR Manager in late 2022. This gap presented challenges to the organisation’s capacity for strategic workforce planning alongside business as usual and the effects of this is evidenced in the lack of delivery of strategic workforce objectives within timescales. This is now being addressed through the current sprint work in the Transformation Blueprint with workforce as an identified theme for delivery now that the HR Strategic Lead is in post. To support this theme, a fixed term HR Assistant was appointed in April 2024 to assist with workforce planning. 19. The council needs to ensure that it bases its workforce strategy on reliable and robust data which demonstrate the challenges it faces particularly in recruitment and retention, the labour market context, projected skills and capacity and wellbeing alongside the strategic priorities for the council in the delivery of services. The characteristics of mature workforce planning are described in the workforce planning maturity matrix in Exhibit 9 in Audit Scotland’s LGO 2023. Elements of workforce planning are progressing across services. 20. The council produced guidance and a toolkit to support services in carrying out workforce planning in 2022. The guidance highlights the need to attract talent, including growing their own by ensuring there are clear progression pathways, with the workforce feeling engaged, valued, motivated and empowered so that staff can reach their full potential. We found that elements of workforce planning are progressing across services but there is no strategic framework for ensuring the work is properly planned, co-ordinated and documented. As a result we have been unable to assess the extent of progress in preparing the workforce strategy and detailed plans. Recommendation 1 The council should ensure it has sufficient capacity to deliver its corporate workforce strategy and detailed plans within agreed timescales. Page 26 of 182
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4: Developing future skills and capacity | 11 2: Digital technology and the workforce The council is developing its digital strategy under its Transformation Blueprint. It has realised workforce benefits through its successful implementation of Microsoft 365 and the use of digital technology in education services. 21. The Local Government in Scotland Overview notes that digital technology will make councils’ future workforces look and work quite differently. In order to achieve the change required, councils need to make good use of digital technology and use the workforce in flexible ways. 22. Digital technology has a strong bearing on a council’s workforce needs. It can be used to re-shape jobs to increase productivity and reduce back-office functions while improving service quality. Technology solutions include online services, customer relationship management systems, mobile digital devices and more recently, artificial intelligence (AI) applications. 23. Councils need to be innovative in their use of technology and build on new working practices that emerged during the pandemic. In doing so, they must also consider service quality and the needs of people experiencing digital exclusion. 24. The council have invested in the creation of a Chief Digital Officer (CDO) who took up post in January 2023. In line with the Transformation Blueprint, the CDO is developing a refreshed digital strategy which is due to be presented to the council in October2024. 25. Governance arrangements to support the delivery of the digital strategy across the council are aligned with the governance framework for the Transformation Blueprint. The Digital Delivery Group (DDG) meets monthly, providing a formal report to the Business Transformation Board (BTB) at every meeting of BTB. The BTB reports to the Business Transformation Steering Group (BTSG). The DDG aims to provide senior expertise and support for digital initiatives across the council as well as looking at overall resourcing and scrutinising overall performance of digital projects and alignment to the Council’s strategic objectives. Individual digital projects have their own governance arrangements which then report to the DDG and BTB and BTSG i.e. the implementation of M365 is scrutinised by the M365 Project Board with progress reported into this overarching governance framework. Page 27 of 182
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4: Developing future skills and capacity | 12 The council has implemented Microsoft 365 to support more efficient and collaborative working and provided staff with bespoke equipment and access to accessibility software. 26. The council is successfully supporting staff to use Microsoft 365. The first phase of the programme supported the workforce to use core office applications to work in a more efficient and collaborative way. Midlothian Council partnered with a consultancy company to develop the in-house technical skills required for the project and then appointed a project manager in April 2023 to roll out the first phase by October 2023. This included change management strategies, communicating the benefits of Microsoft 365, in-person sessions with questions and answers, forming a champions network, and multiple methods of training including personalised support where required. 27. The council evaluated this phase of the programme highlighting success stories and identifying learning points to inform the next phase of the programme. Overall, they found that the programme helped people work more efficiently and collaboratively by using: • the planner application in Teams for project management; • Teams channels to enable more group discussions and sharing of information and support; • Loop to organise and share meetings information; and • federation to enable calendar sharing with the NHS to improve planning and coordination with NHS colleagues. 28. The second phase of this programme is currently in progress and is focused on realising the full benefits of the Microsoft 365 across the council. This will involve a significant change programme to improve the way staff work to save time and collaborate more simply. The business case sets out the objectives, financial costs, benefits and risk management. The council is building in learning from the first phase of the programme, for example, a CMT member on the Microsoft 365 Board to provide visible senior leadership and there is more focused work with services on how they can use digital to work better and improve their own processes. Digital Services have been pivotal in supporting hybrid working 29. The council has supported hybrid working since 2023. Digital Services have been pivotal in enabling hybrid working through upgrading workspaces and corporate laptops in addition to migrating the software of mobile phones to better integrate with Microsoft 365. Digital Services have also responded to accessibility issues raised by staff in a survey on hybrid working, examples of this are providing staff with bespoke equipment and access to accessibility software such as closed captioning for the hearing impaired and dictation and reading software. Page 28 of 182
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4: Developing future skills and capacity | 13 Good practice: Digital The council has successfully rolled out Microsoft 365 and has used feedback to drive continuous improvement. The council is continuing to explore how the use of digital initiatives can further improve processes. The council has invested £10.5 million in transforming approaches to learning, teaching and assessment and received national recognition. 30. The council is successfully supporting its staff to work in new, digital ways with primary and secondary pupils. Equipped for Learning is a £10.5 million investment project that has enabled all 14,000 young people of school age to receive a device for learning and is transforming approaches to learning, teaching and assessment. The council is now in the third year of this five-year project and has taken an innovative approach to upskilling staff to make sure they have the digital skills needed to transform learning. 31. The council invested in a Digital Inclusion and Learning Team (DILT) comprising a senior learning technologist, four learning technologists and assistive learning technologists for complex needs. This team works directly in schools engaging directly with teachers and support staff, to best use digital tools. 32. The council has successfully trained staff in digital skills in two key areas to help support better outcomes for those children with special educational needs: • Google workspace for education: In spring 2022, the council worked in partnership with Canopy to equip staff with the skills needed to use Google Workspace Tools to make the most from Google Workspace for Education. By winter 2022, 92% of staff had completed the tutorials, allowing them to use technology in ways that had not been possible before. • Read/Write software: This is a literacy support toolbar which removes barriers to learning and helps every child succeed. The toolbar gives young people from primary one upwards accessibility tools to engage with learning in different ways. The council invested in this software in 2021 but usage was low due to lack of staff awareness and the skills to use it. DILT used a similar approach to Google Workspace, going into schools and delivering in-person training with all staff showing how the literacy toolbar supports children with different additional support needs as well as children who have English as a second language. The positive impact of this approach is evident with a 529% increase in usage, 90% decrease in referrals for assistive technology, increases in staff confidence and improved productivity of young people. The council won a Learning Places Scotland national award in 2023. 33. In 2023, the council won a Learning Places Scotland national award for Transforming Learning, Teaching and the Curriculum for its Equipped for Page 29 of 182
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4: Developing future skills and capacity | 14 Learning project. Since then, the council has partnered with a digital software supplier to enable families to download free literacy support software to their own devices for free. This is anticipated to help improve outcomes for children and their families who can use the software to help them access information and support in a more inclusive way. Good practice: Innovation in Education The council has been successful in transforming approaches to learning, teaching and assessment and won a Learning Places Scotland national award in 2023. 34. To help support the rapidly growing local population and growing demand a new Customer Service Platform (Channel Shift) was launched in 2022 enabling online payments 24/7, customer self-service and the automation of back-office payments. The customer services platform has generated some efficiencies and provides the council with better data to track the progress of customer requests and use this data to make improvements. 35. The council still has a significant way to go to fully implement Channel Shift with nine modules complete and over 40 in plan, design and test phases to be launched in 2024/25. The rationale adopted was to prioritise high volume transaction services. The council recognises that the shift to online services can lead to digital exclusion for many people in its local communities and therefore customers can still request services by phone. The council shows some initiatives to better support people who may have barriers to accessing digital technology both in its communities and its workforce, through a range of digital upskilling programmes delivered through Library and Community, Lifelong Learning and Employability Services. 36. Digital services will be critical to helping the council meet growing demand and improve outcomes. Resource for digital services is limited and agreeing priorities to best deliver improved outcomes will be an important function of the Digital Delivery Board. 37. The Learning and Development team across Adult and Children’s services developed some bespoke training rooms with wireless digital access to online and face to face training. Specific attention has been focused on providing digital access and support to the workforce who might struggle to operate and access digital learning. The bespoke rooms have docking stations, ipads and smart screens to aid access to learning for all with bespoke support from learning and development practitioners. Page 30 of 182
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4: Developing future skills and capacity | 15 3: Flexible working and other innovative staff deployment 38. Work is ongoing to embed Fair Work First across the organisation. Fair Work First, is a Scottish Government policy for driving high quality and fair work, and workforce diversity. Through this approach Midlothian Council can demonstrate fair working practices which are visible in attitudes, behaviours, culture, policies and practices within the organisation, and the value placed on fair work and equal opportunity in work. 39. The Council has appropriate channels for effective workers’ voice, such as trade union recognition: Unions were fully engaged in the recent review of the Midlothian Recognition & Procedural Agreement, which provides; Collective voice channels • Providing access to trade unions and making workers aware that they can join a union of their choice. • Involving trade union/worker representatives in key governance and decision-making structures. • Recognising trade unions for the purpose of collective bargaining and encouraging membership, where this is the workforce’s preferred route, and providing appropriate facility time for supporting regular engagement between union/s and members. • Constructive dialogue between the employer, workers and where appropriate a relevant trade union/s to address workplace issues or disputes, e.g. absence management, grievance, health & safety. Individual voice channels • Pulse surveys have been carried out to understand worker views, including how well they feel effective voice is facilitated in the organisation, and are involved in agreeing and progressing improvement action. • Formal and informal arrangements are in place through which meaningful individual and collective dialogue take place, including one-to-ones between workers and management, appraisal/feedback processes, team/organisation meetings. • Appropriate collective consultation and a clear route for resolving issues at both individual and collective levels, such as through a grievance or collective disputes procedure. Page 31 of 182
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4: Developing future skills and capacity | 16 • The organisation has highlighted that it promotes a strong culture of openness and transparency and encourages acceptance of different viewpoints. Investment in workforce development: • Learning & development is integrated in the organisation’s strategic planning and workers and management jointly identify development needs and priorities, ensuring both individual and organisational needs are met. • Regular equality and diversity training is provided for all staff. • Learning & development opportunities are provided, and regularly reviewed, to help build the organisation’s resilience and responsiveness to change. • Managers have development discussions with individuals and teams and prioritise this as part of operational activity. • Workforce Development Plans and Succession Management Plans are in place. • Formal and informal learning is offered across the workforce, relating to people’s particular role and wider development. • The organisation is committed to providing apprenticeships. • The organisation is committed to supporting the Young Person’s Guarantee. • Staff are supported to keep their professional qualifications up-to-date. • The organisation has an appropriate charter mark achievement such as Investment in People or EFQM. • The organisation invests in and utilises the skills and knowledge of union equality, learning and other workplace representatives and resources. • Constructive engagement with union learning reps and Scottish Union Learning activities. • Carbon literacy training is provided for all staff. No inappropriate use of zero-hours contracts: • All staff are employed on open-ended or fixed term contracts with confirmed hours and work pattern. Action to tackle the gender pay gap and create a more diverse and inclusive workplace: • Recruitment, retention and promotion processes prevent bias and barriers, for example, ’blind’ recruitment; providing additional support/adjustments at application and interview stages; diversity in interview panels; and exit interviews are used to understand why a person is leaving. Page 32 of 182
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4: Developing future skills and capacity | 17 • Workplace adjustments are in place and made for disabled staff or those with long term health conditions who need it. Additional support for adjustments are accessed through Access to Work. • Flexible working - which could be a reasonable adjustment to some – is encouraged across the organisation from day one of employment, subject to business need. • Workers have opportunities to influence the organisation’s approach to workplace equality, including by sharing their own experiences. • The organisation gathers data to understand its workforce diversity and has a plan in place to address under-representation. • Governance structures are gender balanced and the organisation is working to ensure parity for racialised minorities, disabled, young people and workers over 50 years. • Enhanced maternity, parental and adoption leave and pay are available for all staff, and staff are supported to return to work through keep in touch days and refresher courses. • A private, healthy and safe environment is provided for breastfeeding mothers to express and store milk. • Everyone has equal access to appropriate learning & development opportunities. • All staff have opportunities to discuss their support needs with management. • Employers are able to provide safe spaces for workers to express their concerns and raise issues and where workers are confident that their concerns are dealt with appropriately by trained personnel. • Policies are in place that align with Equally Safe, Scotland’s strategy for preventing and eradicating violence against women and girls (VAWG). • Staff and policies recognise Commercial Sexual Exploitation as a form of VAWG and support the policy principles, applying these to relevant policy and practice. • The organisation gains Equally Safe at Work accreditation to prevent workplace sexual harassment. • Employers promote and support mentally healthy workplaces where mental health and wellbeing is meaningfully discussed and where stigma and discrimination is addressed. • The organisation provides support to women experiencing menopause in the workplace. Information is available from NHS Inform and Close the Gap Page 33 of 182
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4: Developing future skills and capacity | 18 Offer flexible and family friendly working practices • Organisational policies and practice are in place to support flexible and family working, developed collaboratively by the employer, workers, where present, trade union or other worker representative, in line with legal requirements in terms of reasonable adjustments, and are regularly reviewed. • Jobs are designed around business outcomes, not based on fixed locations or times to provide flexibility. • Flexible working and family friendly policies are highlighted in job adverts. • Employers and workers have constructive conversations about requests for flexibility. Trial periods or pilots can be used to test workable solutions for the individual, team and employer. • Managers get appropriate training and support to enable them to effectively manage individuals who work flexibly. • Flexible and family friendly options are available at all levels in the organisation and for all staff – not just women or mothers, and to encourage partners to share caring responsibilities. • Flexible working can be offered as a temporary arrangement to accommodate particular circumstances with review points agreed at the outset by the employer and the worker. • Learning and development is arranged to accommodate different flexible working arrangements and, where practicable, technology is used to facilitate access. • Enhanced provision is available to support workers with families, such as more tailored maternity, adoption, and shared parental leave and pay. • Accessible systems and protocols, such as IT equipment and digital diaries, are used to facilitate effective work practices, enabling remote workers to participate alongside their site-based colleagues. • Meetings are arranged at times that enable workers to attend (in person, by phone or virtually) so everyone can contribute and feel included. • Effective use of flexible and family friendly practice is modelled from the top down. • Employers develop and maintain a home and other remote working policy with consideration given for workers with protected characteristics and suitable provision to support workers’ mental health and overall wellbeing. • Working from home and other remote working is not monitored by invasive worker monitoring software. • Employers, workers and, where present, union or other worker representative, collaborate to agree an approach to flexible and out-of- Page 34 of 182
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4: Developing future skills and capacity | 19 hours working, with clear boundaries between work and non-work time - enabling workers to disconnect outside working hours. 40. The Council promotes the Armed Forces Covenant within Midlothian. They work closely with partners to make it easier for serving personnel, reservists, veterans and their families to integrate seamlessly into their local communities, and to help them access any help or support they might need. 41. During the pandemic councils needed to make the best use of their existing workforce while continuing to monitor employee wellbeing. Councils continue to look to new ways of working to improve job satisfaction and reduce sickness absence and staff turnover. 42. Home-working and hybrid working (a combination of office and home-based working) have now become commonplace. Some councils are also considering more radical working practice such as a standard four-day working week. However, whatever the working practice, employers need to ensure that service quality and productivity are maintained. The council’s Hybrid Working Policy provides flexibility for staff and hybrid working is promoted by the council as a non- financial benefit for employees. It should be noted that most of the Council’s workforce are front facing but for those who have a role that can be delivered in a hybrid way, the Council recommends and supports this way of working. The policy was formally agreed after extensive staff and Trade Union consultation in late 2023. As the policy is embedded and hybrid working practices are fully adopted, supported by the rollout of digital tools such as M365, then the council will be able to assess the overall impact of hybrid working at an organisational level. 43. The council approved a remote working policy in September 2020 in response to the Covid-19 pandemic, which was then refreshed and updated to a Hybrid Working Policy in 2023 and continues to support hybrid working as a non-financial benefit for employees. Given the range of disparate jobs across the council, it is up to managers to discuss appropriate working arrangements with employees and ensure that they are fit for purpose for their specific job and complements individual lifestyles as much as possible. 44. The council carried out staff surveys on hybrid working at Midlothian House/ Fairfield House and Eskdaill Court. Around 1,000 staff members responded and provided insights into wellbeing whilst working from different work settings including home and in the community. The survey covered a range of issues around the benefits and drawbacks of hybrid working, whether sufficient support is provided, communicating with colleagues, the office environment and records management. Staff raised a wide range of issues including practical and technical issues as well as suggestions for improvements. The council collated the issues raised and shared their response to promote more effective hybrid working in spring 2023. Page 35 of 182
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4: Developing future skills and capacity | 20 45. Midlothian Council is supportive of hybrid and flexible working, recognising these benefits can be used to attract staff to work and stay with the council in a competitive labour market environment. However, the council has not assessed the overall impact of hybrid working at an organisational level such as its effect on performance, budget savings and efficiencies. Discussions are ongoing about the impact of hybrid working on the estate. The council has data on the use of their offices which informs the Estate Rationalisation and Hub and Spoke/One Stop Shop workstreams within the Transformation Blueprint and the Capital Plan Prioritisation work programme, which is subject to consideration by elected members. There are no decisions yet taken on changing the estate. Recommendation 2 For employees who have adopted the hybrid model, the council should assess the impact of hybrid working at an organisational level to ensure this way of working is generating organisational benefits as well as benefits for employees on an individual level. The council’s flexible working policy supports employees in achieving a good work-life balance. 46. The council has a flexible working policy, recognising the benefits of providing employees with flexible working options to achieve a satisfactory work-life balance. Other supportive policies in place for staff include a carers policy; family leave policy; adoption policy; menopause policy; transgender equality policy; mental health and wellbeing policy; and flexible retirement policy. 47. The CMT took the strategic decision to move away from generic staff surveys in 2020 and moved towards a model of service specific and listen and learn sessions which are free flowing discussions with staff on how they are feeling on issues facing the council and these issues are passed on for discussion with senior staff to identify areas that they can respond to and improve. The council get feedback on some individual initiatives for example on hybrid working, behaviour in schools and the wellbeing pilot with occupational health in facilities management, but they need to do more to demonstrate overall impact on staff. Recommendation 3 The council should collate the information gathered from listen and learn sessions and staff feedback exercises to measure the impact of new and existing workforce policies or initiatives on an ongoing basis. Page 36 of 182
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4: Developing future skills and capacity | 21 The council is proactive in promoting health and wellbeing and has maintained the Healthy Working Lives Gold Award for over nine years. 48. The council launched its wellbeing approach in May 2022 which shares wellbeing activities and courses on an ongoing basis. During April to September 2023, the council organised over 30 wellbeing events for staff including health checks, mental health awareness, support for the cost of living and mindfulness. The council also promoted carer’s week and men’s health guidance. 49. Throughout 2022/23, the council upheld the Healthy Working Lives Gold Award which it has now maintained for more than nine consecutive years. The Council has also upheld the Equally Safe Bronze Award since 2022 and through the Equally Safe Steering Group, is proactively working towards achieving Silver Award. 50. Policies relating to health and wellbeing are continuing to be developed and updated for a variety of conditions and situations and occupational health wellness appointments are being piloted with a view to extending them across the council. 51. The council approved a Wellbeing Strategy in 2023 which focuses on the financial, physical, and psychological wellbeing of the workforce and ensures employees have access to advice, guidance and initiatives which support their health and wellbeing. This will be linked to the Workforce Strategy which is being drafted and presented to committee in late 2024. Good practice: Wellbeing The council has maintained the Healthy Working Lives Gold Award for over nine years and continues to explore new ways to support employee wellbeing. Page 37 of 182
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4: Developing future skills and capacity | 22 4: Developing future skills and capacity 52. Councils need to find innovative ways to secure the workforce capacity and skills they need to deliver services in the future. Training and development opportunities can help to attract and retain employees and ensure skills are in place. Many councils work with their partners to offer apprenticeship schemes or vocational qualifications. Succession planning is also important to develop future leaders and ensure that essential skills are in place. 53. Jobs can be re-designed to optimise the workforce and improve services. The Council’s Transformation Blueprint has a key theme called “21st Century Workforce” which is taking forward digital solutions and different ways of delivering services. Capacity and recruitment issues are significant challenges for the council. 54. As with many public sector organisations, capacity and recruitment issues are significant challenges for the council with shortages being experienced in several key services including education, digital, procurement and social care. Recruitment for posts can take several months. The council has identified that some of the staff shortages arise from competition from both the private sector and neighbouring local authorities who often pay higher rates for certain posts. To cover vacancies that cannot be filled, sometimes the council uses agency and temporary staff across different job roles and sectors. At the time of audit, the council was using a total of 255 agency staff and 1,120 casual staff. While this can help fill staff shortages, it is expensive and brings additional costs. A review of all Off-Payroll Workers commenced in 2023, with digital mechanisms introduced to support the enhanced governance of the use of Off-Payroll Workers. Individual services with higher reliance on agency workers are undertaking reviews of their workforce plans i.e. in Waste Services as part of the Neighbourhood Services restructure, the Procurement Strategy refresh and through the recently completed Sport and Leisure staffing review. 55. To address recruitment challenges, the council is drafting a recruitment strategy which will set out their objectives in attracting and recruiting staff to the organisation and will be taken forward under the Transformation Blueprint. In the meantime, a rigorous approach to deciding whether to fill non-essential vacancies has been introduced with directorate management teams having to consider and justify replacements for vacant posts. 56. Human Resources are working with Communications to promote Midlothian Council as an employer of choice drawing on non-financial benefits such as flexible and hybrid working, an employee assistance programme which offers confidential counselling and an additional voluntary contribution scheme for pensions has recently been approved. A successful recruitment event at Page 38 of 182
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4: Developing future skills and capacity | 23 Edinburgh College was held by the People and Partnership Directorate over two days in May to promote Midlothian Council as an employer of choice. 57. CMT have agreed to a revised onboarding and induction programme to commence in 2024. This programme will have an interactive induction led by Leadership Team, an annual recognition event for long service, refreshed exit interviews, and a survey to better understand the reasons that staff leave the organisation and what learning and improvements can result from this information. Good practice: Innovation in recruitment The council used an innovative recruitment video to attract a headteacher to a special education school in Midlothian, using interviews with staff and children in the school to highlight the culture and ethos of the school and the skills needed in a headteacher. A number of work placement and experience initiatives are in place to support young people. 58. The council’s Communities, Lifelong Learning and Employability Service (CLLE) run a successful employability programme which supports the council’s workforce. Council departments are encouraged and supported to take advantage of foundation and modern apprenticeships and work experience and work placements to support local people taking their first steps to employment and building a career. Other innovative and impactful approaches include: • Partnership working: In partnership with Children and Families Service in 2023, the council created a paid summer work experience placement opportunity at Loanhead Vocational Learning Centre targeted at care experienced and ‘at risk’ young people. Children and Families Services referred young people to the programme, the purpose being to upskill and develop knowledge of the construction industry leading to permanent employment. Both practical and employability skills were embedded into the programme. The programme was made as accessible as possible, and a keyworker was allocated to continue supporting everyone on their employment journey beyond the placement. Four out of five learners completed the course and the programme has been evaluated to capture what went well and what could be done differently. • Support: The council supported 128 apprentices with an achievement rate of 72%. CLLE are currently bidding for 67 modern apprenticeships in 2024/25 across different council services. • Establishing connections: The council are liaising with local universities and considering how to support graduate apprenticeships. • Redesign: The council are working in partnership with the People Powered Results Team from Nesta to restructure Neighbourhood Services which includes redesigning jobs and developing people and their careers. Page 39 of 182
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4: Developing future skills and capacity | 24 • Guaranteed interviews – the Council operates a guaranteed interview scheme for people that are trainees of a Midlothian Council Training Programme, have a disability and most recently, in 2024, introduced ‘The Promise Guarantee’ for care experienced young people, supported by CLLE. 59. While the council has a number of good employment initiatives, and some services have begun to consider succession planning, they are not being considered or implemented in a formalised or consistent way. This is especially important given the council’s ageing workforce, with over one third of employees aged 40-55 years and over a quarter aged 56 and over. Recommendation 4 The council needs to formalise its overall approach to recruitment and developing future skills and capacity. Midlothian Council’s Health and Social Care Partnership (HSCP) have introduced a number of innovative initiatives to improve the skills and capacity of their future and existing workforce. 60. Audit Scotland’s 2022 Social care briefing highlighted that the social care workforce has high vacancy rates with many services facing recruitment problems. Together with the increasing demand for social care this presents a risk to the capacity and quality of social care services. The workforce issues being experienced nationally are replicated within the Midlothian HSCP. 61. The HSCP has a workforce plan 2022-25. This plan makes comprehensive use of data on the workforce needs for the 1,330 staff who work for the partnership. The plan outlines key posts where recruitment is problematic and sets out how the HSCP plans to adapt the workforce to challenging labour market conditions. The plan lays out solutions to workforce shortages such as making use of technology, the third sector, partnership working and building career pathways. The HSCP is exploring ways to attract people in to care roles and supporting those in the role to improve retention rates. 62. The HSCP has implemented innovative employment initiatives including: • working with the council’s CLLE service to provide an increased number of foundation and modern apprenticeships; • working with the council’s CLLE service to support parental employability programmes to support parents back into employment across social care services; • a grow your own approach with around 90 people doing SVQs and 14 people working towards becoming a social worker; Page 40 of 182
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4: Developing future skills and capacity | 25 • investment in leadership programmes to support front line mangers in the workforce to further develop their career with Midlothian Council and the HSCP; • working with the Department for Work and Pensions to trial assisted work placements with the long term unemployed. 63. The HSCP is also working to attract young people into the profession by regularly going into schools to talk about career paths in health and social care. 64. The Practice Learning and Development Team for HSCP and Children’s Services have developed learning and development frameworks for social work and social care staff to help support and retain staff. The objectives include providing staff with a route map of qualifications and continuous professional development opportunities as well as a clearer route map and access to career pathways. 65. Following a comparative analysis of in-house and external staff retention rates, the HSCP piloted new block contracts with two external providers so that workers got paid for a shift rather than a client-by-client basis. They found that the retention rate increased from 66% to 85%. The change in contract type embedded a human rights-based approach, benefitting staff by offering fairer pay and terms and conditions and benefitting clients by providing greater consistency in carers. 66. As well as improving retention rates and providing benefits for staff, the purchase of block contracts has generated some level of savings for the HSCP including savings from reduced overtime payments. Good practice: Workforce Initiatives The council and the HSCP have introduced several initiatives to improve capacity and skills for their existing and future workforce. Careful consideration has been given to providing opportunities for young people and the unemployed. Page 41 of 182
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Appendix 1: Improvement action plan | 26 5: Joint workforce arrangements across services and partners 67. Councils should look to work collaboratively with their partners to make the best use of their existing workforces and plan for the particular workforce needs in their areas. They should also work across traditional service department roles within councils to deliver improved services and outcomes. Examples of this include generic working across health and social care, professional posts or functions shared between councils, and services delivered through empowered communities. The council shares a small number of other roles with other councils however the workforce benefits of these arrangements have still to be captured or quantified. 68. Examples of shared services: • Internal Audit: Midlothian Council and East Lothian Council share internal audit services. A service level agreement has been in place since December 2022 for sharing the post of Chief Internal Auditor. The Chief Internal Auditor and the audit team deliver services to both councils, as well as the Midlothian Integration Joint Board. Benefits from this arrangement including building capacity, sharing expertise, and building a greater pool of knowledge. The council plans to review this arrangement later in 2024. • Library services: The council delivers a shared mobile library service. The service operates throughout Midlothian, East Lothian and villages to the west of the county. This arrangement has been in place since 2015. East Lothian pay a small contribution towards the provision of this service. • Out of hours contact centre: East Lothian Council is the lead provider for a shared out of hours contact centre. This agreement has been in place since 2010. • Non-domestic rates services: The City of Edinburgh Council administers Midlothian Council’s non-domestic rates service. • The ethical commissioning of care at home services with the council’s external care at home providers has supported and enabled a more stable and consistent workforce for care at home across Midlothian. This has further enabled those using these services to receive a more consistent and higher standard of service. Page 42 of 182
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Appendix 1: Improvement action plan | 27 69. The council has not captured the extent to which there have been workforce benefits resulting from these shared roles. These might include reduced workforce, costs, or service benefits. Recommendation 5 The council should capture the extent to which there have been workforce benefits resulting from shared services. Work is ongoing to assess and improve shared service models with neighbouring local authorities. 70. The council is also a member of a shared services working group led by West Lothian Council. The group comprises six local authorities including Midlothian. Working with the Improvement Service, the group aims to develop and implement six transformation projects over the next 12 to 18 months. The council’s own Chief Officer Corporate Solutions sits on three of these working groups. In addition to these workstreams, the intention is to identify some smaller scale approaches that can be piloted or progressed as formal or semi- formal arrangements. Page 43 of 182
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Appendix 1: Improvement action plan | 28 6: Measuring the impact of workforce planning The council monitors a range of workforce data as part of performance reporting. As part of the development of a workforce strategy the council should consider how performance information can support the achievement of objectives. 71. The council presents quarterly and annual performance reports to Cabinet and Performance, Review and Scrutiny Committee providing opportunities for elected members to scrutinise workforce information. 72. The quarterly performance report provides a narrative on workforce achievements over the past quarter and infographics on performance measures including: • sickness absence; • workforce demographics; • occupational health and physiotherapy referrals; • number of wellbeing events and attendees; • number of employees accessing e-learning courses; • gender pay gap • staff turnover. 73. The councils also prepares an annual balanced scorecard which provides an opportunity to scrutinise performance measures across the council. It includes the local government benchmarking framework indicators on sickness absence; percentage of council employees in the top 5% of earners that are women and the gender pay gap. In addition, it has its own performance measures on staff turnover and staff appraisal performance however only one of these measures shows a target. 74. Service level workforce plans remain in development as noted in Chapter 1. These plans are essential for ensuring that organisational goals align with staffing needs and service delivery expectations. The successful delivery of these service plans depends on the availability of accurate and insightful performance information. 75. In order to ensure the success of its workforce plan the council needs to develop a high-quality performance management framework linked to the Page 44 of 182
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Appendix 1: Improvement action plan | 29 workforce strategy. The use of robust data will help the council make informed decisions about staffing levels, skills requirements and resource allocation which would help it build a sustainable workforce. Recommendation 6 The council should ensure that organisational and service level workforce strategies are supported by appropriate performance management information including quantifiable metrics. Page 45 of 182
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Appendix 1: Improvement action plan | 30 Appendix 1: Improvement action plan Issue / risk Recommendation Agreed management action / timing 1. Capacity of human resources team The Human Resources and Organisational Development Team is led by the HR Strategic Lead (appointed in December 2022) and comprises 2.8 FTE HR Business Partners (each aligned to one of the Council’s three Directorates), 1FTE Policy Officer, 1FTE OD Officer, 1FTE Lead Job Analyst, and 1.8FTE Investigating Officers. This team supports an overall council workforce of around 4,000 full time equivalent. There was a gap in recruiting the HR Strategic Lead with the departure of the previous HR Manager in late 2022. This gap presented challenges to the organisation’s capacity for strategic workforce planning alongside business as usual and the effects of this is evidenced in the lack of delivery of strategic workforce objectives within timescales. This is now being addressed through the current sprint work in the Transformation Blueprint with workforce as an identified theme for delivery now that the HR Strategic Lead is in post. To support this theme, a fixed It is critical that the council ensures it has sufficient capacity to deliver its corporate workforce strategy and detailed plans within agreed timescales (refer paragraph 20). The Council is currently developing its refreshed Workforce Strategy which will be presented to Council in December 2024. The strategy will be accompanied with an implementation plan for the first two years, and within this a resourcing plan to deliver the work programmes within. Page 46 of 182
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Appendix 1: Improvement action plan | 31 Issue / risk Recommendation Agreed management action / timing term HR Assistant was appointed in April 2024 to assist with workforce planning. Risk: Workforce planning is not being progressed in line with corporate objectives. 2. Organisational impact of hybrid and flexible working While noting that most Council staff are front facing, the council has not assessed the overall impact of hybrid and flexible working at an organisational level for example on performance, budget savings and efficiencies. The council has data on the use of their offices which informs the Estate Rationalisation and Hub and Spoke/One Stop Shop workstreams within the Transformation Blueprint and the Capital Plan Prioritisation work programme, which is subject to consideration by elected members. There are no decisions yet taken on changing the estate. Risk: Employees and the council may not be securing planned benefits and efficiencies from adopting hybrid and flexible working. For the employees who have adopted the hybrid model the council should assess the impact of hybrid working at an organisational level to ensure this way of working is generating organisational benefits as well as benefits for employees on an individual level (refer paragraph 45). A follow up report on the impact of hybrid working will be developed in early 2025. 3. Staff survey The Council took the strategic decision to move away from generic staff surveys in 2020 and moved towards a model of service specific and listen and learn sessions which are free flowing discussions with staff on how they are feeling on issues facing the council and these issues are passed on for discussion with senior The council should collate the information gathered from listen and learn sessions and staff feedback exercises to measure the impact of new and existing workforce policies or initiatives on an ongoing basis (refer paragraph 47). This work is ongoing to inform the workforce strategy development. A summary report of L&L sessions, actions and responses will be developed and presented to Corporate Management Team in early 2025. An all staff survey was issued in late August 2024, which is the first since 2019. This is to primarily inform the Page 47 of 182
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Appendix 1: Improvement action plan | 32 Issue / risk Recommendation Agreed management action / timing staff to identify areas that they can respond to and improve. The council get feedback on some individual initiatives for example on hybrid working, behaviour in schools and the wellbeing pilot with occupational health in facilities management, but they need to do more to demonstrate overall impact on staff. Risk: The council has no measure of how staff are feeling or the impact across the workforce of any new workforce policies or initiatives. development of the workforce strategy but will also be the first of actions to adopt a staff engagement programme for the organisation – the staff engagement programme will be developed and presented to Corporate Management Team in early 2025. 4. Developing future skills and capacity Capacity and recruitment issues are significant challenges for the council. Some good employment initiatives are in place and there are some examples of succession planning but this is not being done in a formalised or consistent way. Risk: Capacity and recruitment issues are not being addressed consistently or in line with corporate objectives. The council needs to formalise its overall approach to recruitment and developing future skills and capacity (refer paragraph 59). This work programme will be part of the Workforce Strategy to be presented to Council in December 2024. 5. Shared services Midlothian Council shares several services with other council’s across the Lothian region. The council has not captured the extent to which there have been workforce benefits resulting from these shared roles. These might include reduced workforce, costs, or service benefits. The council should consider capturing the extent to which there have been workforce benefits resulting from shared services (refer paragraph 69). Work is required to develop a benefits realisation approach to shared services. This will be looked at as part of the review of the existing shared services in Q3/4 2024/25. Page 48 of 182
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Appendix 1: Improvement action plan | 33 Issue / risk Recommendation Agreed management action / timing Risk: The council is unable to demonstrate workforce benefits resulting from shared roles. This information would help with workforce planning and budgeting. 6. Performance management framework In order to ensure the success of the workforce plan the council needs to develop a high-quality performance management framework linked to the strategy. Risk: Without the use of robust data the council will not be able to make informed decisions about staffing levels, skills requirements and resource allocation which would help build a sustainable workforce. The council should ensure that organisational and service level workforce strategies are supported by appropriate performance management information including quantifiable metrics. (refer paragraph 76). KPIs will be developed for the delivery of the Workforce Strategy and integrated into the quarterly performance reporting which is presented to Cabinet and Performance, Review and Scrutiny Committee. This will be implemented for Q3/Q4 2024/25 reporting. Page 49 of 182
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Appendix 1: Improvement action plan | 34 Midlothian Council Workforce innovation: How councils are responding to workforce challenges Audit Scotland’s published material is available for download on the website in a number of formats. For information on our accessibility principles, please visit: www.audit-scotland.gov.uk/accessibility For the latest news follow us on social media or subscribe to our email alerts. Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN Phone: 0131 625 1500 Email: info@audit-scotland.gov.uk www.audit-scotland.gov.uk AS.4.0 Page 50 of 182
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Fiscal Update August 2024 FiscalCommission.scot Audit Committee Wednesday 30 September 2024 Item 5.2 Page 51 of 182
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© Crown copyright 2024 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence visit Open Government Licence (nationalarchives.gov.uk) or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@NationalArchives.gsi.gov.uk Where we have identified any third-party copyright information you will need to obtain permission from the copyright holders concerned. This publication is available at www.FiscalCommission.scot Any enquiries regarding this publication should be sent to us at: Scottish Fiscal Commission, Governor’s House, Regent Road, Edinburgh EH1 3DE or info@FiscalCommission.scot ISBN: 978-1-911637-71-4 Published by the Scottish Fiscal Commission, August 2024 Laying number: SFC/2024/4 Page 52 of 182
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1 Foreword The Scottish Fiscal Commission is the independent fiscal institution for Scotland. Our statutory duty is to provide independent and official forecasts of the Scottish economy, devolved tax revenues and devolved social security spending to inform the Scottish Budget. We also publish regular commentary on the Scottish Budget. This report considers how recent developments in the economic and fiscal outlook could affect the Scottish Budget in 2024-25 and 2025-26. We are publishing this update to support the pre-Budget scrutiny work of the Scottish Parliament ahead of the 2025-26 Scottish Budget. We would like to thank once again the hard-working staff of the Commission for their support in the production of this analysis. Our reports represent the collective view of the four Commissioners who take full responsibility for them. Professor Graeme Roy Professor Francis Breedon Professor Domenico Lombardi Professor David Ulph 27 August 2024 Page 53 of 182
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2 Contents Foreword .................................................................................................................................... 1 Chapter 1 Summary ................................................................................................................... 3 Chapter 2 Fiscal Overview ....................................................................................................... 12 Chapter 3 Economy ................................................................................................................. 20 Chapter 4 Tax .......................................................................................................................... 26 Chapter 5 Social Security ......................................................................................................... 34 Annex A Changes to the 2023-24 Budget since December 2023 ............................................ 38 Annex B Restated forecasts for new policy baselines .............................................................. 43 Page 54 of 182
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3 Chapter 1 Summary Introduction 1.1 Since our December 2023 publication the pressure on the Scottish Government’s finances has increased. The Scottish Government is now facing a challenge in balancing its budget. The extent of these challenges was evidenced in mid-August when emergency controls were put in place to restrict spending in 2024-25. The 2024-25 position was tight when the Budget was set in December 2023, since then pressure over public sector pay has grown. 1.2 Decisions by the Scottish Government have played a role in these budget pressures. As well as previous public sector pay deals in Scotland being higher than in the rest of the UK, other policy commitments made by the Scottish Government such as the council tax freeze in 2024-25 and the ongoing effect of its social security reforms have contributed to the growing pressure on the Scottish Budget. 1.3 There have also been announcements by the new UK Government which will affect how much funding the Scottish Government receives, although much of the detail will not be clear until the UK Budget on 30 October 2024. 1.4 These announcements will set the scene for the next Scottish Budget. In this Fiscal Update we summarise the developments to date, highlighting where these may have implications for the Scottish Budget. This work aims to support the Scottish Parliament in its pre-Budget scrutiny process. Timeline of changes affecting the Scottish Budget 1.5 Since the Scottish Fiscal Commission published its last forecasts in December 2023 there has been a change of Scottish First Minister and the election of a new UK Government. The Scottish Government’s planned Medium-Term Financial Strategy (MTFS) was postponed from its original date in May following the resignation of the previous First Minister, and subsequently cancelled because of the pre-election period for the UK general election. We usually publish updated forecasts in May alongside the MTFS but as that did not take place, we have not updated our forecasts since December 2023. Therefore, we are publishing this Fiscal Update to set out the economic and fiscal developments since December 2023. We also explore how these, and other upcoming events will affect the 2024-25 and 2025-26 Scottish Budgets. 1.6 Since December 2023 there have been no significant confirmed changes in the Scottish Government’s funding, but the pressure on spending has increased with public sector pay offers in Scotland now coming in higher than the pay policy published in May 2024. There is significant uncertainty on the level of funding the Scottish Government will receive from the UK Government ahead of the UK Budget. Page 55 of 182
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4 1.7 The Scottish Government’s funding position will become clearer over the next few months. The UK Government will set out its spending plans and announce any planned changes to UK taxes for 2024-25 and 2025-26 in the UK Budget on 30 October. As there is a new government, there is potential for some significant changes to the tax and spending plans set out by the previous UK Government. These are likely to result in changes to Scottish Government funding. The Office for Budget Responsibility (OBR) will produce updated forecasts of UK Government tax revenues and spending alongside the UK Budget. These will affect the Block Grant Adjustments (BGAs) for devolved taxes and social security. 1.8 There are several other events which will take place before the UK Budget, including a Scottish Government statement to Parliament on the fiscal position as well as the Programme for Government in early September. Later in September, the Scottish Government is expected to present its Autumn Budget Revision (ABR) to the Scottish Parliament, outlining how the 2024-25 Budget has changed as a result of changes in UK Government funding from the March UK Budget and underspends from 2023-24 carried forward to 2024-25 through the Scotland Reserve. The ABR may also reflect the emergency spending controls put in place in August, but the Scottish Government could wait until the Spring Budget Revision in January 2025 to confirm the implications. 1.9 After the UK Budget, we will begin the process of updating our economic and fiscal forecasts as the Scottish Government develops its tax and spending policies in preparation for the Scottish Budget. The Scottish Budget will confirm the Scottish Government’s tax and spending plans. We will publish updated economic and fiscal forecasts alongside it. 1.10 When the 2025-26 Scottish Budget is published we will have a more complete picture of the funding and spending position. Nevertheless we can highlight important fiscal developments, the emerging economic context, and significant moments when further information will become available in the coming weeks and months. UK Government announcements and Scottish Government response UK Spending Audit 1.11 The UK Government’s Spending Audit, published at the end of July 2024, was accompanied by several announcements which will affect the Scottish Government’s funding.1 Public Sector Pay 1.12 The Audit included commitments on public sector pay. The recommendations of the independent Pay Review Bodies were adopted in full for 2024-25. These covered NHS England staff, teachers, armed forces, police, prison officers and Civil Servants. While the vast majority of these pay deals do not apply in Scotland, there are still implications for the Scottish Government’s funding. Most pay awards are in the range of 5 to 6 per cent in 2024-25, considerably higher than the 2 per cent assumption included in the 1 HM Treasury (2024) Fixing the foundations: public spending audit 2024-25 Page 56 of 182
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5 2021 UK Spending Review. While announcements have not been made on UK public sector pay in 2025-26, the higher pay awards in 2024-25 will result in higher levels of pay in 2025-26 than were previously expected. 1.13 The implications of this higher spending on public sector pay for departmental budgets in 2024-25, and therefore on the level of Block Grant funding, is currently unclear. The UK Government has indicated that departments will receive some additional funding but will also be expected to absorb some of the increased costs from within their current budgets. The extent to which this is additional money and the extent to which it is offset by reductions in other areas of devolved spending will become clearer in the UK Budget. However, the UK Government may wait until the publication of the Supplementary Estimates in February 2025 to confirm the final effect on departments budgets and on the Scottish Government’s Block Grant. 1.14 Pay negotiations are ongoing across the Scottish public sector and are taking place before the Scottish Government has certainty on the level of funding it will have in 2024-25. The Scottish Government has already announced additional spending commitments to support pay offers above planned levels. The offers of 4.27 per cent for local authority workers and 5.5 per cent for nurses and NHS workers are both higher than the 3 per cent set out in the Government’s pay policy published in May.2,3,4 This is likely to create pressure for other pay awards to be higher than the Scottish Government had planned for. The Scottish Government is also likely to be under pressure to at least match UK pay awards, which, as indicated, are in the range of 5 to 6 per cent in 2024-25 for areas covered by the Pay Review Bodies. 1.15 The Scottish Government has estimated that in 2023-24 pay accounted for over £25 billion of resource expenditure across the devolved public sector, including local government.5 This is over half of the resource budget.6 Increases in public sector pay therefore have a significant effect on the Scottish Government’s spending. In our December 2023 report we noted that the Scottish Government had “not set a formal guideline for public sector pay for 2024-25” and that “the average public sector pay award in 2023-24 was 6.5 per cent, 3 percentage points higher than the Scottish Government had estimated in May 2023”.7 If a Budget is set based on pay assumptions which are lower than those that materialise, this creates challenges with in-year management of the Budget, requiring the Government to reduce its planned spending on services. The recent emergency spending controls the Scottish Government has put in place for 2024-25 are the result of those challenges. 2 Scottish Government (12 August 2024) Local Authority Pay 3 Scottish Government (20 August 2024) Pay offer to NHS Agenda for Change staff 4 Scottish Government pay policy is for a 2 per cent increase to apply from April 2024 and a further 1 per cent increase to apply from January 2025, this is a cumulative 3 per cent increase but equates to 2.3 per cent increase in-year. Scottish Government (2024) Public sector pay policy 2024 to 2025 5 Scottish Government (2024) Public sector pay policy 2024 to 2025 6 Local Government have other sources of funding that are locally retained, and so are not part of the Scottish Budget, mainly service income and council tax. These also go towards paying local government staff salaries. 7 Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023 Page 57 of 182
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6 1.16 Over the last few years the Scottish Government has generally increased public sector pay by a higher percentage than was the case in England. This has the consequence that subsequent pay awards are more costly. For example, if teachers in Scotland are more highly paid than in England, then an equivalent percentage rise in teacher salaries will be more costly to implement in Scotland. This further contributes to the pressures of public sector pay on the budget. 1.17 The decisions made on public sector pay, and how those are agreed with the unions, will determine the pressures on the Scottish Budget. As public sector pay is already higher in Scotland than in England, matching or exceeding in percentage terms the pay increases given in England would result in greater pressure on the Scottish Budget. If pay awards in Scotland were lower in percentage terms than those in England this would reduce the pressure on the Scottish Budget. Tax and social security announcements 1.18 The UK Government Spending Audit also included new policy announcements in areas that have been devolved to the Scottish Parliament. These policies will affect the Scottish Government’s funding. The Scottish Government is having to make decisions on the equivalent devolved policies. 1.19 The most notable announcement from the UK Government was on Winter Fuel Payment (WFP). The UK Government has announced that from this autumn it will only be paid to older people receiving means-tested benefits rather than all people over the state pension age. This will decrease spending on WFP in England and Wales. The Scottish Government receives funding through a Block Grant Adjustment for WFP, it is estimated this will decrease by between £140 million and £160 million in 2024-25 as a result. 1.20 This is the first instance of a significant UK Government social security policy change taking place in-year with an effect on BGA funding. In response the Scottish Government has announced that eligibility for Pension Age Winter Heating Payment (PAWHP), the replacement for WFP in Scotland, will also be restricted to older people in receipt of means-tested benefits.8 This is expected to reduce spending on PAWHP by between £140 million and £160 million. As the reduction in spending will be aligned with the reduction BGA funding, we do not expect there to be a net effect on the Scottish Government budget for 2024-25. However, as the UK Government policy change was announced after the 2024-25 Scottish Budget was set, the Scottish Government could defer the in-year adjustment to account for the reduction to the BGA until the final BGA can be calculated with outturn spending data and a reconciliation applied to a future Scottish Budget. 1.21 The application of Value Added Tax (VAT) to private schools across the UK from January 2025 will not have a direct effect on the Scottish Government’s funding as VAT is a reserved tax and the UK Government will receive the additional revenue. However, applying business rates to private schools in England from April 2025 will affect Scottish Government funding. 1.22 An increase in revenue from private schools paying business rates (known as Non-Domestic Rates in Scotland) in England would increase tax revenues for the UK 8 Scottish Government (2024) UK Government decision ends universal fuel payments Page 58 of 182
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7 and local government in England. The UK Government could decide to allow local government to keep the additional revenues, or it could reduce grant funding from central government to local government in England. If this happened it would reduce spending by the Ministry of Housing, Communities and Local Government, and therefore the Block Grant, as that department is fully devolved in Scotland. 1.23 There will be indirect effects on the Scottish Budget from the changes to VAT and business rates for private schools as the Labour manifesto committed to using the extra revenue to fund higher spending on education. As education is fully devolved, an increase in education spending in England will result in increased funding for the Scottish Government. 1.24 The Scottish Government has already removed eligibility for charities relief from Non-Domestic Rates for private schools, so does not have the option of replicating the business rates policy to raise revenue, but it will likely still benefit from an increase in spending on education in England. UK Budget 1.25 The new Chancellor will present her first Budget on 30 October 2024, setting out the UK Government’s overall tax and spending plans. The recent Spending Audit has already highlighted the pressures on public spending and several commitments have been made which will constrain the UK Government’s choices. These include two fiscal rules: for day-to-day spending to match revenues, and for debt to be falling as a share of the economy by the fifth year of the OBR forecast. There have also been commitments not to raise income tax, National Insurance or VAT rates. 1.26 The Scottish Government must broadly balance its budget as it has limited ability to save or borrow across years. The UK Government sets the fiscal position for the UK and effectively borrows on behalf of the Scottish Government, other devolved administrations and local government. The fiscal rules which the new Chancellor sets will determine the balance of tax and spending in the UK. Given the Chancellor’s commitment to meet the two fiscal rules, and not to raise the three largest UK taxes, it is unclear how much public spending levels in the UK will change from the plans of the previous government. 1.27 The Institute for Fiscal Studies (IFS) has highlighted that there is potentially some “fiscal wiggle room” available through changing the definition of debt used in the rules, but “the impact of such a change would be fairly modest in scale”. The IFS conclude that “any substantial and permanent increase in spending on public services or social security this autumn would likely need to be accompanied by higher taxes”.9 The commitments not to raise the rates of the three largest taxes suggest there would either need to be changes to the tax base for these taxes, or changes to other smaller taxes. 1.28 The overall fiscal position taken by the UK Government will affect the funding, and policy choices, of the Scottish Government. Changes in spending in devolved areas lead directly to changes in the Block Grant. But devolved tax and social security changes will 9 IFS (2024) Definitions of debt and the new government’s fiscal rules Page 59 of 182
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8 also affect Scottish Government funding, and some reserved tax changes could still affect the Scottish Budget. 1.29 The new UK Government has committed to no increases in rates of income tax. However, a policy from the previous Government to freeze the higher rate threshold in the UK until 2027-28 remains in place.10 This policy raises additional income tax revenues in England and Northern Ireland as fiscal drag means more taxpayers will pay the higher rate of tax. This increase in UK Government tax revenues increases the income tax BGA and reduces funding to the Scottish Budget. The Scottish Government will need to decide its own income tax policy including how to set tax thresholds. We note that the recent period of high inflation and associated earnings growth has resulted in a relatively stronger effect of fiscal drag in Scotland because it has a more progressive income tax system than the rest of the UK. Beyond the headline income tax rates and thresholds, any policies which affect income tax revenues across the UK (for example reforming income tax reliefs) could also affect Scottish Government funding, depending on the relative effect on Scottish and UK income tax revenues. 1.30 Changes to reserved taxes such as Capital Gains Tax (CGT) will not directly affect the Scottish Budget, but there can still be effects on Scottish tax revenues. For example, changes to CGT could result in behavioural changes which affect revenues for Land and Buildings Transaction Tax. 1.31 The Labour manifesto included a commitment to reviewing Universal Credit. At present there are no details on the scope of the review. While Universal Credit is not devolved, there are devolved social security payments where eligibility is usually based on families receiving Universal Credit. The most significant of these payments is Scottish Child Payment (SCP). If the UK Government makes changes to Universal Credit, then there could be an effect on the number of people receiving SCP. 1.32 One aspect of Universal Credit which has been the subject of discussion recently is the two-child limit. The rule means that families receiving Universal Credit do not receive extra money for third and subsequent children. If the rule was removed, then the affected households would see a noticeable rise in their Universal Credit income. We do not think there would be a substantial increase in SCP eligibility from the removal of the two-child limit because most families affected are already receiving Universal Credit. New eligibility would only come from families whose income is currently too high to qualify for Universal Credit, but who would be eligible for a small award if another child element is added to their entitlement. Therefore, with a limited effect on eligibility, we would expect a change to the two-child limit to have a relatively small effect on SCP spending. UK Spending Review 1.33 Spending reviews set out government spending plans over multiple years. The previous UK Government held its last spending review in 2021 with the current financial year (2024-25) as the last year covered by that spending review. Beyond 31 March 2025 there are no detailed departmental spending plans, just figures for growth in total resource and capital spending. This means the Scottish Government does not have certainty on the level of Block Grant funding it will receive from the UK Government 10 OBR (2023) The impact of frozen or reduced personal tax thresholds box Page 60 of 182
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9 beyond the end of the current financial year. The previous UK Government had set plans for total spending which would limit real terms growth in resource spending to 1 per cent while capital spending was to remain flat in cash terms. The OBR noted that these plans imply real terms cuts in non-protected areas of spending while “performance indicators for public services continue to show signs of strain”.11 1.34 The UK Budget will set out UK Government spending plans for 2024-25 and 2025-26. Plans beyond this will be part of the next spending review, which will take place over the winter and will be published in spring 2025. This will set out departmental spending plans to at least 2027-28. The new UK Government has also committed to a more regular cycle of spending reviews. A regular cycle of spending reviews should mean that Block Grant funding is more certain and that the Scottish Government will therefore be in a better position to provide multi-year spending allocations as part of its Medium-Term Financial Strategy. Developments since December 2023 Economy 1.35 The overall economic context for 2024-25 is broadly in line with our December 2023 forecast. In particular, expectations for Gross Domestic Product (GDP) growth this year remain similar to our previous forecast. 1.36 Headline annual Consumer Price Index (CPI) inflation fell back to the 2 per cent target in 2024 Q2, around a year earlier than we expected in December 2023. Falling global energy prices were an important feature of the more rapid than expected reduction in headline inflation, while domestically driven inflation has generally been more persistent. 1.37 One area of interest is Scottish nominal average earnings growth. In December 2023, our analysis of Real Time Information (RTI) mean pay data showed that, in 2022-23 and in the year to September 2023, nominal average earnings grew strongly in Scotland and more strongly than in the UK overall. This relative strength of Scottish pay growth was broad-based across sectors and regions. In part, this reflected tighter labour market conditions in Scotland, such as greater recruitment difficulties and higher vacancies, pushing up Scottish earnings relative to the UK. However, based on the latest RTI data, Scotland’s earnings growth in the first part of 2024-25 has slowed and is now similar to the UK average. Relative earnings growth is an important factor in determining the income tax net position. Income tax 1.38 Turning to income tax, we now have outturn data for 2022-23. From the data, we can see that 2022-23 was a relatively positive year for growth in Scottish income tax revenues, with the provisional income tax net position reaching £257 million. As this net funding position is higher than the projected negative £190 million when the 2022-23 Scottish Budget was set, there will be a positive provisional reconciliation of £447 million applied to the 2025-26 Scottish Budget. 11 OBR (2024) Economic and fiscal outlook – March 2024 Page 61 of 182
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10 1.39 Funding from income tax in the 2025-26 budget will also depend on updated OBR and Scottish Fiscal Commission (SFC) forecasts, due to be published on 30 October and alongside the Scottish budget respectively. As we discuss in Chapter 4, 2022-23 and 2023-24 appear to have been positive years for growth in Scottish income tax revenues relative to the UK. However, at the start of 2024-25, Scottish earnings growth appears to have slowed and is now more in line with the rest of the UK. Only after both the OBR and we have updated our income tax forecasts, taking account of all these factors, will we know the complete picture for income tax funding in the 2025-26 Scottish Budget. 1.40 In our December 2023 Scotland’s Economic and Fiscal Forecast (SEFF) we discussed how Scottish and UK income tax policy changes meant that, all else equal, we’d likely see the income tax net position rising over time. This is now being borne out with the latest income tax outturn data showing a positive net position. Higher tax rates, additional tax bands and lower tax thresholds mean a higher proportion of taxpayers are paying higher rates of tax in Scotland, earning the Scottish Government additional revenue over time. However, because of relatively slow growth in the Scottish economy since income tax was devolved, there remains a gap between the latest income tax net position and where it might be based on policy differences alone. Our provisional estimate of this economic performance gap means that funding in the Scottish Budget in 2022-23 was around £624 million lower than it would have been had Scottish economic performance matched the rest of the UK. Social Security 1.41 We now have outturn for social security spending in 2023-24. Overall, social security spending was £5.3 billion. The latest estimate for the 2023-24 social security BGA funding is £4.4 billion. We estimate spending exceeded the BGA funding by around £0.9 billion. This is in line with our forecasts for 2023-24 from both December 2022 and December 2023. 1.42 Our assessment is that the gap between spending on devolved social security and the associated BGA funding is the result of policy choices made by the Scottish Government. These choices include the introduction of new payments such as Scottish Child Payment not available elsewhere in the UK, and the operational and delivery changes made when Child Disability Payment (CDP) and Adult Disability Payment (ADP) were introduced. We forecast the gap will grow in future years as the operational and delivery changes for disability payments continue to take effect. In December 2023 we forecast total spending on devolved social security in 2024-25 to be around £1.1 billion higher than the funding the Scottish Government receives through the social security BGA, with that gap growing to around £1.5 billion in 2028-29. Conclusions 1.43 While we now have some information on how the 2024-25 Scottish Budget may change, there will still be significant uncertainty about the level of UK funding the Scottish Government receives until the UK Government presents its Budget on 30 October. 1.44 This will then set the scene for the 2025-26 Scottish Budget that is likely to be presented to Parliament in late November or early December. The Scottish Budget will include details of the Scottish Government’s tax policies and its spending plans for 2025-26. The Scottish Government will need to make difficult decisions to balance the budget and Page 62 of 182
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11 ensure decisions now are sustainable in the future. As we discuss in this Fiscal Update, some of these decisions will depend upon complex interactions with UK Government decisions. Others will depend more on Scottish factors. 1.45 The 2024-25 position was tight when the Budget was set in December 2023. Since then pressure over public sector pay has grown. When the Scottish Government agrees pay deals which are above its pay policy this will further increase pressure on the Budgets for 2024-25 and future years, especially as the extent to which UK Government pay deals will be met from within existing budgets or result in increased funding is unclear. Policy commitments the Scottish Government has made, such as the council tax freeze in 2024-25, social security spending and more generous pay deals in Scotland contribute to the growing pressure on the Scottish Budget. 1.46 The Scottish Budget will be published in very different political circumstances to last year’s. The Bute House Agreement between the SNP and Green Party has ended so the passage of the Budget Bill will require the Government to reach agreement with at least one other political party. If this agreement involves changes to proposed Scottish taxes or social security payments after the Budget has been published, the Scottish Fiscal Commission is required to publish additional costings. 1.47 As we set out in December 2023, in our role as the independent fiscal institution for Scotland we encourage the Scottish Government to plan its Budget over the short, medium, and long term. We note this can be challenging because of the inherent uncertainties in the Scottish Government’s funding sources, but this makes it even more important to plan funding and spending recognising the potential variations in future levels of funding to ensure decisions made now are sustainable in the future. Page 63 of 182
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12 Chapter 2 Fiscal Overview Introduction 2.1 Since our last forecast in December 2023, there have been several developments which have affected the level of funding available in both the current financial year (2024-25) and future years. 2.2 Following the UK general election and the change in the UK Government, the new Chancellor set out a public spending audit.12 This included several announcements which will affect Scottish Government funding, although the more precise effects will only be known at the next UK Budget which will take place on 30 October 2024. While the UK Government plans to confirm 2024-25 funding as part of the UK Budget, there may still be further changes to the Block Grant for 2024-25 as UK Government departments only get their allocations finalised at Supplementary Estimates in February 2025. 2.3 The UK Budget is expected to include further tax and spending announcements and set levels of spending for each department in 2024-25 and 2025-26. Any changes to spending or tax plans in devolved areas will result in changes to Scottish Government funding. 2.4 The Chancellor also announced that a Spending Review will be published in spring 2025 when the UK Government will set out its spending plans for the next three years. 2.5 In this chapter we discuss the implications of UK Government announcements. We then discuss the latest changes in 2024-25 as well as developments which will affect the 2025-26 Scottish Budget. 2.6 We also report on the changes to the funding position for the previous financial year 2023-24, in Annex A. The last time we reported on it, December 2023, we were three quarters into the financial year. We now know the provisional outturn position. UK Government announcements 2.7 As discussed in Chapter 1 recent and future UK Government commitments will affect the Scottish Government’s funding. The recent Spending Audit included commitments on public sector pay and changes to Winter Fuel Payment eligibility. 2.8 The next UK Budget will confirm departmental budgets for 2024-25, and set out the UK Government’s tax and spending plans for 2025-26. Funding the Scottish Government receives through the Block Grant is related to Departmental Expenditure Limits (DEL) spending in devolved areas. This means the UK Budget will update the level of Block Grant funding for 2024-25 and 2025-26. 12 HM Treasury (2024) Fixing the foundations: public spending audit 2024-25 Page 64 of 182
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13 2.9 The UK Government is undertaking a spending review over the winter, and it will be published in spring 2025. This will set out departmental spending plans to at least 2027-28. The new UK Government has also committed to a more regular cycle of spending reviews, held every two years and setting out plans for at least three years of the five-year forecast horizon. 2.10 UK Government spending plans in spending reviews will affect Scottish Government funding. A regular cycle of spending reviews should mean that Block Grant funding is more certain and that it is easier for the Scottish Government to provide multi-year spending allocations as part of its Medium-Term Financial Strategy. We note the next Scottish election in May 2026 will be in the second year of a three-year spending review, but we encourage the Scottish Government to set out multi-year spending plans even when these cross into a new parliament to support planning across the public sector. 2.11 The UK Government’s Spending Audit published at the end of July included commitments on public sector pay in 2024-25. They adopted the recommendations of independent Pay Review Bodies in full. Most pay awards are in the range of 5 to 6 per cent in 2024-25 and are considerably higher than the 2 per cent assumption included in the 2021 UK Spending Review. 2.12 The implications of this higher spending for departmental budgets, and therefore on the level of Block Grant funding, is currently unclear. The UK Government estimated the pay awards will increase spending by £9.4 billion above what was planned in 2024-25, and that pay awards for the previous years have already increased wage costs in 2024-25 by £2.4 billion, a total increase of £11.8 billion. The Chancellor’s statement said that at least £3 billion of this needs to be managed within existing budgets, but departments covered by these pay awards will potentially see increases in their budgets. 2.13 Pay negotiations are ongoing across the Scottish public sector. These pay deals are being negotiated before the Scottish Government has certainty on its available funding in 2024-25. The Scottish Government has already announced additional funding to support a pay offer in local authorities. The offer of 4.27 per cent is higher than the 3 per cent in 2024-25, 2025-26 and 2026-27 set out in the Government’s pay policy published in May.13,14 This will likely create pressure for other pay awards to be higher than previously planned. The Scottish Government is also likely to be under pressure to at least match UK pay awards, which are in the range of 5 to 6 per cent in 2024-25 for areas covered by the Pay Review Bodies. 2.14 Increases in public sector pay have a significant effect on the Scottish Government’s spending. In our December 2023 report we noted that the Scottish Government had “not set a formal guideline for public sector pay for 2024-25” and that “the average public sector pay award in 2023-24 was 6.5 per cent, 3 percentage points higher than the Scottish Government had estimated in May 2023”.15 If a Budget is set based on pay 13 Scottish Government (12 August 2024) Local Authority Pay 14 Scottish Government pay policy is for a 2 per cent increase to apply from April 2024 and a further 1 per cent increase to apply from January 2025, this is a cumulative 3 per cent increase but equates to 2.3 per cent increase in-year. Scottish Government (2024) Public sector pay policy 2024 to 2025 15 Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023 Page 65 of 182
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14 assumptions which are lower than those that materialise, this creates challenges with in-year management of the Budget requiring the Government to reduce its planned spending on services. The recent emergency spending controls the Scottish Government has put in place for 2024-25 are the result of those challenges. 2.15 The Scottish Government has generally provided higher pay awards for the public sector in Scotland than in England over the last few years. These previously higher pay awards mean that subsequent pay awards are more costly. For example, if teachers in Scotland are more highly paid than in England, then an equivalent percentage rise in teacher salaries will be more expensive to implement in Scotland. This further contributes to the pressures of public sector pay on the budget. 2.16 The decisions made on public sector pay, and how those are agreed with the unions, will determine the pressures on the Scottish Budget. Matching the pay awards given in England would result in greater pressure on the Scottish Budget. If pay awards in Scotland were lower in percentage terms than those in England to reflect the previously higher public sector pay growth this would reduce the pressure on the Scottish Budget. Alternatively there could be pressure to exceed UK pay awards because of previously higher pay awards, this would further exacerbate the existing pressures on the Budget. Box 2.1: Scottish public sector pay and workforce Public sector pay is an important part of the Scottish Budget. The total public sector paybill for 2023-24 was around £25 billion, or over half of Scottish Government resource funding.16 The public sector in Scotland is larger than the public sector in the rest of the UK. Figure 2.1 shows that the public sector in Scotland accounts for 22.6 per cent of total Scottish employment compared to 17.6 per cent for the UK overall, or 25.8 per cent of Scottish Gross Value Added (GVA) compared to 19.3 per cent for the UK overall. The public sector in Scotland has higher average pay than in the rest of the UK. Figure 2.1 also shows that, before taxes, the median pay for a full-time public sector employee in Scotland was £2,400 higher than in the UK in 2023, which was up from £700 in 2019. After taxes, the average full-time public sector employee in Scotland was still earning more than the UK average, around £1,500 in 2023 which was up from around £400 in 2019.17 Figure 2.1: Public sector average earnings and workforce size, Scotland and UK Geography Gross median annual earnings, 2023 (£) Employment share, 2024 Q1 (per cent) [1] GVA share, 2023 (per cent) Scotland 39,100 22.6 25.8 UK 36,700 17.6 19.3 Source: ONS (2024) Earnings and hours worked, UK region by public and private sector: ASHE Table 25, Scottish Government (2024) Public sector employment statistics for 1st Quarter 2024, ONS (2024) Public sector employment, UK: March 2024, Scottish Government (2024) GDP Quarterly National Accounts: 2024 Quarter 1 (January to March) – Table D, ONS (2024) GDP output approach – low-level aggregates (28 June 2024). [1] Based on figures excluding effects of major reclassifications. 16 Scottish Government (2024) Public sector pay policy 2024 to 2025 17 Scottish Government (2024) Public sector: economic overview Page 66 of 182
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15 2024-25: changes since December 2023 2.17 We last estimated funding for the 2024-25 financial year in December 2023, when the 2024-25 Scottish Budget was presented to the Scottish Parliament.18 While we cannot yet provide a fully updated position for 2024-25, we set out some changes affecting available funding that we are already aware of. The Scottish Government may include these in its Autumn Budget Revision (ABR) expected in September 2024. Some of these changes will also affect funding available in 2025-26. 2.18 Since December 2023 there have been increases in funding because of additional Block Grant funding from the UK Government. Underspends from 2023-24 which were not anticipated in December 2023 will now be used in 2024-25. 2.19 The 2024-25 Budget position was tight when it was set in December 2023. Although there have been some increases in funding, those confirmed so far are mostly not recurring and will only be available to the Scottish Government to use once. Until the UK Budget in October there is still a lot of uncertainty on the overall funding position, while pressure from public sector pay is growing. In the face of this uncertainty, Scottish Government spending decisions could have fiscal consequences for the current and future years. Block Grant 2.20 Since December 2023 there have been two changes to UK departmental budgets, with consequences for the Block Grant. These are the UK Spring Budget 2024,19 and the Main Supply Estimates 2024-25. 20 Together, they have increased the Block Grant across resource and capital by £691 million. Figure 2.2 shows these changes which comprise: • An increase of £731 million in resource funding, of which £293 million was generated at the UK Spring Budget 2024 because of increased spending on devolved areas in England in 2024-25. An additional £437 million was confirmed at the 2024-25 UK Main Estimates as a result of increased funding to cover higher employer contributions to unfunded public service pension schemes. The Scottish Government will need to also meet the cost of higher employer pension contributions and therefore this does not represent an increase in potential spending. • A reduction of £39 million between capital and Financial Transactions (FTs) since December 2023. There is an increase of £13 million for capital, but this is more than offset by a reduction of £53 million in FTs. Not all of these were announced at the Budget and Main Estimates. The reduction in FTs is a deferred cut from 2023-24 which was announced at UK Supplementary Estimates in February 2024.21 2.21 The UK Budget on 30 October 2024 will confirm UK spending plans for 2024-25 and so may result in further changes to the Block Grant in-year. While the UK Government 18 Scottish Government (2023) Scottish Budget: 2024 to 2025 19 HM Treasury (2024) Spring Budget 2024 20 HM Treasury (2024) Main supply Estimates 2024 to 2025 21 HM Treasury (2024) Supplementary Estimates 2023-24 Page 67 of 182
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16 plans to confirm 2024-25 funding as part of the UK Budget there may still be further changes to the Block Grant for 2024-25 as UK Government departments will not get their final allocations for the year confirmed until Supplementary Estimates in February 2025. Figure 2.2: 2024-25 Barnett consequentials since December 2023 Type of funding (£ million) Changes up to August 2024 Resource +731 Capital (excluding FTs) +13 Financial Transactions (FTs) -53 Total +691 Source: Scottish Fiscal Commission, Scottish Government. Figures may not sum because of rounding. Block Grant Adjustments 2.22 The Office for Budget Responsibility (OBR) will produce updated forecasts alongside the next UK Budget. These will result in in-year changes to the fully devolved tax and social security Block Grant Adjustments (BGAs). The OBR’s March 2024 forecasts implied in-year reconciliations of zero for social security, and a reduction of around £50 million in funding to reflect higher Stamp Duty Land Tax revenues in England and Northern Ireland than previously forecast. 2.23 The UK Government has announced that Winter Fuel Payment (WFP) will become restricted to older people on low incomes, with the change coming into effect this winter. WFP was due to be devolved in September, so the change in policy does not automatically apply in Scotland. 2.24 The BGA will decrease because the UK Government will be spending less on WFP. The UK Government currently estimates this will save the UK Government £1.4 billion in 2024-25,22 a reduction in spending of nearly 75 per cent.23 The OBR will produce a revised forecast alongside the UK Budget which will be used to estimate a revised BGA. 2.25 The Scottish Government has announced that eligibility for Pension Age Winter Heating Payment (PAWHP), the replacement for WFP in Scotland, will also be restricted to older people in receipt of means-tested benefits. 24 This is expected to reduce spending by a similar amount to the reduction in BGA funding. As the UK Government WFP policy change was announced after the 2024-25 Scottish Budget was set, the Scottish Government can opt to either adjust funding for the Winter Fuel Payment BGA in-year or defer the adjustment until the BGA can be calculated with outturn spending data and a reconciliation applied. Deferring the adjustment would mean that 2024-25 spending 22 UK Government (2024) Fixing the foundations: public spending audit 2024-25 23 The last forecast for UK Government spending on Winter Fuel Payment was £1.9 billion in 2024-25. DWP (2024) Benefit expenditure and caseload tables 2024 24 Scottish Government (2024) UK Government decision ends universal fuel payments Page 68 of 182
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17 would fall while social security BGA funding would remain the same potentially releasing funding for alternative spending in 2024-25. Scotland Reserve 2.26 The Scotland Reserve is an instrument that allows the Scottish Government to move funding between financial years with separate accounts for resource, capital, and FTs. 2.27 Figure 2.3 shows, that the Scottish Government fully used the available funding in 2023-24, drawing down £250 million for resource, £32 million for capital, and £44 million for FTs. 2.28 Provisional outturn data for 2023-24 shows underspends of £292 million, £162 million from resource and £130 million from capital. The Scottish Government now plans to draw these amounts down in full in 2024-25.25 We expect this to be included in the ABR. There would need to be underspends in 2024-25 for reserve funding to be available for drawdown in 2025-26 and later budgets. Figure 2.3: Scotland Reserve position over time £ million 2023-24 2024-25 Resource Blank Blank Opening balance 250 162 Drawdowns 250 162 Additions 162 0 Closing balance 162 0 Capital (excluding FTs) Blank Blank Opening balance 32 130 Drawdowns 32 130 Additions 130 0 Closing balance 130 0 Financial Transactions (FTs) Blank Blank Opening balance 44 1 Drawdowns 44 1 Additions 1 0 Closing balance 1 0 Source: Scottish Fiscal Commission, Scottish Government. Figures may not sum because of rounding. 25 Scottish Government (2024) Budget - provisional outturn 2023 to 2024: briefing note - 20 June 2024. See Paragraph 24. Page 69 of 182
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18 ScotWind 2.29 ScotWind is the leasing of designated areas of the seabed for the purpose of developing offshore wind farms. From the first round of leasing, it generated £756 million in funding for the Scottish Government, of which £96 million were used in 2022-23. 2.30 The Scottish Government has a remaining £660 million of ScotWind proceeds available to spend. In December 2023 the Scottish Government planned to use £460 million in 2023-24 and £200 million in 2024-25. Plans for 2023-24 have been revised and no ScotWind proceeds were used in this year, as shown in Figure 2.4. There are £460 million of ScotWind proceeds remaining to be used in 2024-25 or future years. Figure 2.4: Use of ScotWind proceeds over time £ million 2022-23 (outturn) 2023-24 (outturn) 2024-25 (planned) Balance at start of year 756 660 660 Drawdowns 96 0 200 Balance remaining 660 660 460 Source: Scottish Fiscal Commission, Scottish Government. Figures may not sum because of rounding. 2025-26 Budget 2.31 The 2025-26 Scottish Budget will be published later in 2024. In it, the Scottish Government will set out its tax and spending policies. We will produce updated forecasts of the economy, tax revenues, and social security spending alongside the Scottish Budget. By then, the OBR will have updated forecasts of UK Government tax revenues and spending, and the UK Government will have set out its own tax and spending plans in its budget on 30 October 2024. 2.32 Therefore, the 2025-26 Scottish Budget will provide a more complete picture of the funding and spending position than we can at present. At the moment we only have a partial picture of how the Scottish Government’s funding is likely to change since our last publication in December 2023. We have discussed developments from UK Government tax and spending plans in Chapter 1, we therefore focus on the income tax reconciliation and Scottish Government borrowing plans. Provisional income tax reconciliation 2.33 Income tax outturn data for 2022-23 was published in July 2024.26 It shows both Scottish and UK income tax revenues were higher in 2022-23 than we and the OBR expected when the 2022-23 Budget was set. However, Scottish income tax revenues have been revised up by more than the income tax Block Grant Adjustment (BGA). As a result, there is a positive provisional reconciliation of £447 million that will be applied to the 2025-26 Scottish Budget. This provides additional funding for that year. 26 HM Revenue and Customs (2024) Scottish Income Tax Outturn Statistics: 2022 to 2023 Page 70 of 182
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19 2.34 While the income tax reconciliation will make a positive contribution to funding, it is less positive than the £732 million we expected in December 2023. The £285 million reduction in the provisional reconciliation is mostly because of revisions in historical income tax data, which have lowered Scottish revenues relative to UK Government revenues. Scottish Government borrowing plans 2.35 The Scottish Government will set out its borrowing plans for 2025-26 in its next Budget. Resource borrowing takes place through the National Loans Fund, but for capital borrowing the Scottish Government has the option of issuing bonds. The Scottish Government has previously stated that it is considering options to issue bonds in the latter half of the 2025-26 financial year.27 2.36 If the Scottish Government plans to issue bonds during 2025-26, these will need to be set out in the 2025-26 Budget and we will assess the reasonableness of those borrowing plans at the time of the Budget. 27 Scottish Government (2023) Scottish Government capital borrowing and bonds: memorandum Page 71 of 182
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20 Chapter 3 Economy Developments since our last forecast 3.1 In this section we discuss developments in the economy since our last forecast in December 2023. We mainly cover the outlook in the current year for inflation, interest rates, Gross Domestic Product (GDP), and earnings, which are the main determinants of our fiscal forecasts. Overall economic context for 2024-25 3.2 The overall economic context for 2024-25 is broadly in line with our December 2023 forecast. One area of interest is the recent realignment of Scottish nominal average earnings growth to the UK, following a period where Scottish earnings grew faster. We explore this in more detail in the next sub-section. 3.3 Headline annual Consumer Price Index (CPI) inflation fell back to the 2 per cent target in 2024 Q2, around a year earlier than we expected in December 2023, as shown in Figure 3.1. Falling global energy prices were a key feature of the more rapid than expected reduction in headline inflation, while domestically driven inflation has generally been more persistent. Figure 3.1: Consumer Price Index (CPI) inflation, UK, year-on-year growth CPI back to 2 per cent target in 2024 Q2, a year earlier than we assumed last December Description of Figure 3.1: Line chart showing the latest outturn data for CPI inflation along with our December 2023 forecast. Outturn CPI is below our last forecast for 2024-25. Source: Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023, ONS (2024) Consumer price inflation tables – July 2024. Outturn December 2023 forecast 0 2 4 6 8 10 12 2021Q1 2022Q1 2023Q1 2024Q1 2025Q1 2026Q1 2027Q1 2028Q1 2029Q1 Per cent Page 72 of 182
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21 3.4 On 1 August 2024 the Bank of England (BoE) announced an interest rate cut in response to falling headline inflation, but remains cautious about the domestic inflation outlook. The BoE had held off cutting rates in previous meetings this year, so interest rates have been slightly higher than our December 2023 forecast. 3.5 Mainly as a result of lower inflation, real disposable income per person – a measure of living standards – has been above our expectations from December 2023. The latest data shows it increased in 2023-24, after the previous year’s record fall. However, the outlook in the near term remains challenging as the downward pressure from higher prices and the recent period of higher interest rates may continue for some time. 3.6 The latest GDP data has also been slightly above expectations, leading some forecasters to revise up their outlook for economic growth in 2024 to around 1 per cent. However, there are potential risks from global economic and political instability such as escalation of events in the Middle East. In December 2023, we forecast GDP growth of 0.7 per cent for Scotland in 2024. Figure 3.2 shows this is still close to recent independent forecasts for Scotland and the UK. Figure 3.2: Scottish and UK forecasts for GDP in 2024, growth rates Per cent 2023 (outturn) 2024 Scotland: SFC December 2023 0.1 0.7 Scotland: FAI June 2024 0.1 0.7 Scotland: EY August 2024 0.1 0.9 UK: OBR March 2024 0.1 0.8 UK: NIESR August 2024 0.1 1.1 UK: BoE August 2024 0.1 1.25 UK: HMT average of forecasters Jul 2024 0.1 1.0 Source: Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023, Fraser of Allander Institute (2024) FAI Economic Commentary Q2 2024, Ernst & Young (2024) EY ITEM Club Scottish Summer Forecast – August 2024, OBR (2024) Economic and fiscal outlook – March 2024, National Institute of Economic and Social Research (2024) UK Economic Outlook – August 2024, Bank of England (2024) Monetary Policy Report – August 2024, HM Treasury (2024) Forecasts for the UK economy: July 2024. Earnings 3.7 In December 2023, our analysis of Real Time Information (RTI) mean pay data showed that, in 2022-23 and in the year to September 2023, nominal average earnings growth was strong in Scotland and above the UK average. This relative strength of Scottish pay growth was broad-based across sectors and regions. In part, this reflected tighter labour market conditions in Scotland as greater recruitment difficulties and higher vacancies pushed up Scottish earnings relative to the UK. 3.8 Based on the latest RTI data, Scotland’s earnings growth has recently slowed and is now similar to the UK average, as shown in Figure 3.3. This is in line with labour market Page 73 of 182
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22 indicators such as Adzuna job vacancies data which indicate convergence in labour market tightness between Scotland and the UK. 3.9 For 2024-25, our December 2023 forecast of Scottish earnings growth and the OBR’s November 2023 forecast for the UK were similar (3.6 per cent and 3.3 per cent respectively). The OBR’s March 2024 forecast of UK earnings growth for 2024-25 was 3.1 per cent. We will continue to monitor the RTI data, and what this means for growth in Scottish earnings relative to the UK, ahead of our next forecast. Figure 3.3: RTI mean pay rolling annual growth, Scotland and the UK Scotland’s annual pay is now growing in line with the UK, after a period of faster growth Description of Figure 3.3: Line chart of RTI data from June 2017 to June 2024 showing mean pay rolling annual growth in Scotland was faster than in the UK for 2022-23 and 2023-24, having usually lagged the UK, and has now largely realigned with the UK average. Source: Scottish Fiscal Commission, ONS (2024) Earnings and employment from Pay As You Earn Real Time Information, seasonally adjusted – August 2024. The shaded area for new outturn denotes data from October 2023 to June 2024 (inclusive) released since our December 2023 forecast. Mean pay growth on a rolling annual basis is the percentage change in mean pay over the latest twelve months compared to the previous twelve months. In March 2023 and March 2024, rolling annual growth is equal to financial-year growth for 2022-23 and 2023-24 respectively. 3.10 Figure 3.4 shows that all Scottish regions had pay growth improving relative to the UK in 2022-23 and 2023-24. This includes the North East, where pay growth caught up with other Scottish regions in early 2022 and was no longer acting as a drag on Scotland’s earnings growth. Over the last six months, all Scottish regions have seen pay growth slowing and largely realigning with the UK average. 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 June 2017 June 2018 June 2019 June 2020 June 2021 June 2022 June 2023 June 2024 Per cent New outturn UK Scotland Page 74 of 182
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23 Figure 3.4: RTI mean pay rolling annual growth, Scottish regions and the UK In all Scottish regions, pay growth has recently slowed down towards the UK average Description of Figure 3.4: Line chart of RTI data from June 2021 to June 2024 showing mean pay rolling annual growth in all Scottish regions was faster than in the UK for 2022-23 and 2023-24, after lagging the UK, and has now largely realigned with the UK average. Source: Scottish Fiscal Commission, ONS (2024) Earnings and employment from Pay As You Earn Real Time Information, seasonally adjusted – August 2024. 3.11 In December 2023, our analysis of RTI data up to September 2023 showed that the strength of Scottish earnings growth relative to the UK was being driven by pay growth in the services sector, which accounts for around three quarters of the Scottish economy. Within services, the finance and insurance sector in Scotland was seeing faster pay growth than in the UK, after a period when it had been a drag on Scotland’s relative earnings growth. 3.12 Since our December 2023 forecast, financial services earnings growth has become more similar between Scotland and the UK, with the pay growth gap recently turning negative again as shown in Figure 3.5. This pattern is similar for other services sectors such as information and communication services or professional services. 3.13 The pattern in Figure 3.5 could be related to the different composition of financial sector activities taking place in Scotland compared to the rest of the UK – primarily in London and the South East. Scotland’s financial services are focused more on pension and insurance services where earnings are steady, whereas London has a bigger weight in investment activities where pay is more sensitive to volatility in bonuses. In 2021-22, financial services activity grew strongly across the UK (4.9 per cent), favouring stronger earnings growth in London and the South East through bonuses. In contrast, financial services activity across the UK recorded slower growth in 2022-23 (0.5 per cent) and contracted in 2023-24 (-1.3 per cent), which could explain the improvement in Scotland’s earnings growth relative to the UK in these years.28 If 2024-25 proves to be a 28 ONS (2024) GDP data tables – Quarter 1 (Jan to Mar) 2024, quarterly national accounts 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 June 2021 June 2022 June 2023 June 2024 Per cent Other Scottish regions North Eastern Scotland UK Page 75 of 182
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24 stronger year for financial services, this could again favour pay growth in the rest of the UK. Figure 3.5: Scotland-UK gap in RTI mean pay rolling annual growth, finance sector In the finance and insurance sector, the pay growth gap between Scotland and the UK has turned slightly negative again since our December 2023 forecast Description of Figure 3.5: Column chart of the Scotland-UK mean pay growth gap from June 2021 to June 2024 for the finance and insurance sector. It shows the gap turned positive in January 2023 and has recently become slightly negative again. Source: Scottish Fiscal Commission, ONS (2024) Earnings and employment from Pay As You Earn Real Time Information, seasonally adjusted – August 2024. Solid fill columns denote financial-year values such as 2021-22, 2022-23, and 2023-24. The shaded area for new outturn denotes data from October 2023 to June 2024 (inclusive) released since our December 2023 forecast. 3.14 We continue to have concerns about the quality of labour market data for Scotland, and we believe there is significant uncertainty around the Labour Force Survey (LFS) statistics for Scotland. We discuss this in more depth in our 2024 Statement of Data Needs.29 As a result, it is challenging to draw conclusions from the LFS on the recent performance of the Scottish labour market relative to the UK. Longer-term prospects 3.15 In this section we provide an overview of key trends in labour productivity, which is the main driver of GDP and earnings growth in the long run. Productivity growth has slowed globally since the 2008-09 Global Financial Crisis (GFC), as we highlighted in previous 29 Scottish Fiscal Commission (2024) Statement of Data Needs – August 2024 -7.5 -5.0 -2.5 0.0 2.5 5.0 June 2021 June 2022 June 2023 June 2024 Percentage points New outturn Page 76 of 182
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25 reports.30 The latest statistics show annual productivity growth in Scotland averaged 0.6 per cent from 2011 to 2023 compared to 1.7 per cent from 1999 to 2010.31 3.16 Over the last five years, productivity growth has been weak across all Scottish regions, as shown in Figure 3.6. The North East had the lowest rate, likely reflecting the decline in North Sea oil and gas activity over the last decade which has knock-on implications for the onshore supply chain. This is consistent with the analysis in Box 4.1 of this report showing the fall in the income tax revenue premium in Aberdeen. Box 3.1 in our December 2023 report discussed our outlook for the North Sea and our view remains largely unchanged. 3.17 In December 2023, we forecast annual productivity growth of 1.1 per cent by 2028-29, broadly in line with the OBR’s forecast for the UK. The underlying assumption is that productivity growth in Scotland and the UK will remain subdued and will not return to the pre-GFC average. Figure 3.6: Output per hour (2019 prices), average annual growth since 2018 Per cent Average annual productivity growth since 2018 [1] UK 0.5 Scotland 0.7 North Eastern Scotland 0.2 Highlands and Islands 0.8 Eastern Scotland 0.5 West Central Scotland 0.9 Southern Scotland 0.5 Source: Scottish Government (2024) Labour productivity statistics: 2023, ONS (2024) Subregional productivity: labour productivity indices by UK ITL2 and ITL3 subregions. [1] For UK and Scotland, averages are from 2018 to 2023 (inclusive) based on the Scottish Government publication. For the Scottish regions, averages are from 2018 to 2022 (inclusive) based on the ONS data. 3.18 Productivity growth depends on a number of factors including investment, technological progress, education and training standards, global connectivity and trade, and government policy. For our forecasts, we monitor these factors as part of our judgement making process. Overall, we think conditions for productivity growth in Scotland broadly align with the UK, and we have typically mirrored the OBR’s productivity growth rate in past forecasts. We will consider the OBR's assessment of the new UK government's policies to raise productivity when we prepare our next economy forecast. 30 Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023, Scottish Fiscal Commission (2018) Forecasting the long-run potential of the Scottish economy. 31 Scottish Government (2024) Labour productivity statistics: 2023 Page 77 of 182
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26 Chapter 4 Tax Income tax Overview 4.1 Scottish income tax revenues grew strongly in 2022-23, with growth in Scotland higher than in the rest of the UK. This growth contributed to a positive income tax net position in 2022-23, and a positive provisional reconciliation of £447 million to be applied in the 2025-26 Scottish Budget. 4.2 Real Time Information (RTI) income tax data suggests continued high growth in 2023-24. This growth has been driven by high inflation and rapidly rising nominal wages, with RTI earnings data showing higher earnings growth in Scotland than the UK in 2022-23 and 2023-24. Tax policies which have fixed tax thresholds and led to fiscal drag in a high inflation context have also contributed to rapidly rising Scottish income tax revenues. 4.3 From 2017-18 to 2021-22, growth in Scottish income tax revenues lagged behind where it might have been given policy differences between Scotland and the UK, due to relatively slow growth in Scottish earnings and employment. Higher Scottish earnings growth in 2022-23 and 2023-24 has closed some of this gap. However, there is still an economic performance gap in Scottish income tax revenues of around £600 million per year, once account is made of the different policy choices in Scotland. In addition, the latest data suggests Scottish earnings growth is slowing relative to the UK, meaning the period of catch-up in Scottish income tax revenues may be coming to an end in 2024-25. 4.4 In this chapter we also discuss two significant corrections to UK income tax data made this year which have reduced revenues, with one also affecting Scottish income tax data. Outturn data, the net position and reconciliations in 2022-23 4.5 Funding in the 2022-23 Scottish Budget depended in part on our December 2021 forecast of Scottish income tax (SIT) revenues and the corresponding Block Grant Adjustment (BGA). The BGA was based on the OBR’s November 2021 forecast of income tax revenues in the rest of the UK. Comparing our forecasts to the BGA, suggested an income tax net position of negative £190 million, and funding for the Scottish Budget was set based on this value. 4.6 We now have income tax outturn data for 2022-23.32 Figure 4.1 compares the outturn data to the original budget setting forecasts for 2022-23. Outturn data shows the provisional net position to be positive at £257 million, leading to a provisional £447 million reconciliation, the largest reconciliation to date. 32 HMRC (2024) Scottish Income Tax Outturn Statistics: 2022 to 2023 Page 78 of 182
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27 Figure 4.1: Scottish income tax outturn and BGA for 2022-23 compared to forecasts £ million Budget setting Outturn Total change Scottish income tax 13,671 15,169 1,498 BGA -13,861 -14,912 -1,051 Net position -190 257 447 Source: Scottish Fiscal Commission (2021) Scotland's Economic and Fiscal Forecasts - December 2021 , HMRC (2024) Scottish income tax outturn statistics: 2022 to 2023, OBR (2021) Economic and fiscal outlook – October 2021. The outturn BGA and net position are provisional 4.7 Both the SFC and the OBR underestimated income tax revenues. Inflation in 2022-23 was significantly higher than expected when both these forecasts were produced. This has led to high nominal earnings growth which when combined with frozen tax thresholds and fiscal drag, led to increasing income tax revenues. Overall, we underestimated Scottish income tax revenues by more than the OBR underestimated UK income tax revenues, leading to a positive reconciliation. 4.8 In Box 4.1 in our December 2023 report we discussed how the more progressive income tax system in Scotland should lead to a positive and rising net position and we are now observing this in data. The HMRC outturn statistics show that combined growth in revenue from higher rate and top rate taxpayers was around 3 percentage points higher in Scotland than in the equivalent bands in the UK in 2022-23. The distribution of tax rates in Scotland has resulted in a greater proportion of taxpayers crossing into a higher tax band than in the rest of the UK, which increases the net position.33 Recent forecasts and data corrections 4.9 Since December 2023 there have been two separate corrections related to income tax data published by HMRC. Both these corrections have affected recent SFC and OBR income tax forecasts and projections of the net position and reconciliations. As with all statistics, historical income tax figures can get revised because of new information becoming available, methodological revisions and improvements, or the discovery of errors in the production process. When revisions occur, it is important that these are communicated clearly and transparently to all stakeholders. HMRC publishes data in line with the standards set out in the Code of Practice for Statistics, which includes guidance on revisions.34 While it is important to understand these errors, the overall impact on the Scottish Budget is small. 4.10 The first is a correction to the Scottish and Welsh income tax outturn statistics in each year from 2016-17 to 2021-22.35 HMRC found there were duplicate records for some taxpayers who appeared in both the Pay As You Earn (PAYE) and Self Assessment systems. This had led to an overestimate of income tax across the UK in all years dating back to 2016-17, with Scottish income tax being overestimated by £118 million or around 0.9 per cent in 2021-22. However, because the issue affected tax estimates in both Scotland and the rest of the UK tax estimates, with a similar magnitude and 33 Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023 – Figure S4.10 34 UK Statistics Authority (2022) Code of Practice for Statistics 35 HMRC (2024) Scottish Income Tax Outturn Statistics: 2022 to 2023 Page 79 of 182
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28 direction of error, the impact on the net position is not as substantial as the headline effect on tax revenues. The correction means a relatively small reduction in the net position in each year and the Scottish and UK Governments are in ongoing discussions about how to handle the impact. 4.11 Second, in February 2024, HMRC issued a correction to their monthly statistics on tax receipts, affecting estimates of UK income tax receipts in 2022-23 and 2023-24.36 We don’t use this data in our forecasts, but the OBR place significant weight on it for their income tax forecasts on which the BGA is based. In February 2024, UK wide total PAYE receipts, which includes income tax and class 1 National Insurance Contributions (NICs), were revised up by £1.8 billion (0.5 per cent) in 2022-23 and by £6.5 billion (2.2 per cent) in 2023-24. The correction has no effect on estimates of Scottish income tax revenues so our December 2023 forecast was not affected. 4.12 Normally, estimates of previous years’ income tax revenues would be fairly stable, as we don’t get much new data or information until the final outturn are published. However, these corrections have meant far more movement in estimates of 2022-23 revenues in recent forecasts than we’d normally expect, as shown in Figure 4.2. Figure 4.2: Scottish income tax outturn and BGA for 2022-23 compared to Budget setting forecasts and to December 2023 £ million Budget setting December 2023 Outturn Change since December 2023 Scottish income tax 13,671 15,309 15,169 -140 BGA -13,861 -14,768 -14,912 -144 Net position -190 542 257 -285 Reconciliation 732 447 -285 Source: Scottish Fiscal Commission (2024) Scotland's Economic and Fiscal Forecasts, HMRC (2024) Scottish Income Tax Outturn Statistics: 2022 to 2023, OBR (2021, 2023) Economic and fiscal outlook. The outturn BGA, net position and subsequent reconciliation are provisional 4.13 In December 2023, we overestimated income tax revenues in 2022-23 by £140 million. Had we been working with the corrected outturn data, our December 2023 estimate of 2022-23 income tax would have been significantly more accurate. In December 2023, we had forecast income tax revenues to grow by 11.5 per cent 2021-22 and 2022-23. Applying this growth rate to the now corrected 2021-22 outturn figure suggests our forecast would have been £15,179 million, a forecast error of only £10 million. 4.14 In March 2024, based on updated OBR forecasts, the estimated BGA for 2022-23 was revised up by £180 million, largely reflecting the correction to the HMRC monthly tax receipts data. 36 HMRC (February, 2024) HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) Page 80 of 182
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29 4.15 Overall, these data corrections account for the majority of the movement in estimates of the 2022-23 net position and reconciliations between December 2023 forecasts and the publication of outturn data. 4.16 The scale of the provisional £285 million revision to the net position between the latest forecasts and the publication of outturn is not unusual in the context of forecast error. However, this is the first time the revision has been driven by data corrections, with the forecasts themselves otherwise proving accurate. When we and the OBR publish our next forecasts they will be based on the corrected outturn data. The income tax net position over time 4.17 We have updated our income tax net position decomposition analysis. We have modelled different scenarios showing how changes in headline employment, average earnings and policy have affected the net position. This sort of scenario analysis is illustrative and doesn’t fully capture all the factors that can affect the net position. Factors that we cannot directly account for with our current methodology, such as changes in the shape of the income distribution, are captured in the other factors category. In addition, policy divergence is modelled on a static basis, with changes in behaviour implicitly captured in the other factors category. 4.18 Figure 4.3 shows how the income tax net position has moved since 2016-17, along with our estimates of how different factors have contributed. Relatively slower economic growth has acted as a drag on Scottish income tax revenues. Scottish average earnings have grown 3.1 per cent lower than in the rest of the UK between 2016-17 and 2022-23 while employment has grown 3.2 per cent lower. In 2022-23 this lower growth in Scottish average earnings and employment has detracted around £1,040 million from the income tax net position. 4.19 Policy changes in Scotland, including increasing tax rates, creating new tax bands, and freezing tax thresholds, have all contributed positively to the net position. Policy changes in the UK have also contributed positively though to a lesser extent. Overall we estimate that policy divergence between Scotland and the UK will have added around £881 million to the income tax net position in 2022-23. 4.20 Other economic factors which we cannot directly control for in this analysis, including changes in the shape of the income distribution and changes in taxpayer behaviour, are also now affecting the income tax net position, adding around £400 million in 2022-23. Page 81 of 182
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30 Figure 4.3: Illustrative contributions to the income tax net position UK and Scottish policy contribute positively to net position with relative earnings and employment divergences contributing negatively Description of Figure 4.3: Combination line and bar chart illustrates the different factors which have contributed to the income tax net position between 2016-17 and 2022-23, with relative earnings and employment divergences contributing negatively, and Scottish and UK policy change as well as other factors contributing positively. Source: Scottish Fiscal Commission. Behavioural effects are not considered when calculating the effect of Scottish policy changes. 4.21 Policy differences between Scotland and the UK increase the net position by £881 million. However, after taking account of slower economic growth and other factors, the net position is only £257 million, a difference of £624 million. We call this difference the economic performance gap. 4.22 Figure 4.4 summarises our estimates of this performance gap over time. The performance gap improved from minus £663 million in 2021-22 to minus £624 million in 2022-23, showing a small catch-up in Scottish income tax revenues after having account for policy differences. Box 4.1 on the oil and gas industry discusses one significant contribution to this gap. Changes in the performance gap reflect the relative growth of the Scottish economy compared to the rest of the UK. From its current negative level, if the Scottish economy broadly matches the UK economy for growth, we’d expect the economic performance gap to remain stable. -1,500 -1,000 -500 0 500 1,000 1,500 £ million Other factors UK policy change Scottish policy change Relative earnings divergences Relative employment divergences Net position Page 82 of 182
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31 Figure 4.4: Economic performance gap There is a performance gap of £624 million in 2022-23 once account is made of the different policy choices in Scotland Description of Figure 4.4: Bar chart showing the economic performance gap between Scotland and the rest of the UK between 2016-17 and 2022-23. Source: Scottish Fiscal Commission. The income tax net position in 2023-24 and beyond 4.23 RTI data on PAYE income tax suggests there will be a positive income tax net position in 2023-24, following on from the year before. The RTI data shows revenue growth of 14.4 per cent in Scotland, compared to 12.0 per cent in the rest of the UK. There are several differences between RTI and the eventual outturn data but this does suggest a further improvement in the income tax net position. As an illustrative calculation, these RTI growth rates suggest the income tax net position rising to £658 million in 2023-24, which would imply a positive reconciliation of £334 million to be applied in the 2026-27 Scottish Budget. 4.24 Both 2022-23 and 2023-24 have been positive years for the net tax position for the Scottish Budget, but this needs to be seen in the context of relatively weak growth in the Scottish economy and income tax revenues since 2016-17. As discussed in Chapter 3, Scottish average earnings growth has fallen to be more in line with the rest of the UK in recent months, possibly marking the end of the recent period of catch-up. Overall, as discussed in Box 4.1 of our December 2023 SEFF, policy differences between Scotland and the UK mean the net position is likely to rise over time, though as we have shown in Figure 4.4 there remains a negative performance gap. -700 -600 -500 -400 -300 -200 -100 0 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 £ million Page 83 of 182
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32 Box 4.1: Income tax and the oil and gas industry The oil and gas industry and its supply chain are highly paid. This contributes to Scottish income tax revenues and therefore the Scottish Budget. However, over the last decade, North Sea oil and gas activity has been declining. This section looks at how this has affected Scottish income tax revenues. Figure 4.5 shows mean average income tax revenue in Scotland and selected regions up to 2021-22. Aberdeen City has a clear premium in average income tax paid compared to the Scottish average, assumed to be largely driven by the activities around North Sea oil and gas. This premium has fallen from around £3,000 per person in 2013-14 to £1,400 in 2021- 22, a fall of over half. Compared to 2016-17 (the baseline year for income tax devolution), the premium has fallen by around £680, or 32 per cent. Regions with a similar premium (Edinburgh, East Lothian, East Renfrewshire) have not seen the premium fall over the period. The City of Edinburgh has now overtaken Aberdeen City as the highest average tax revenue region of Scotland. Figure 4.5: Average income tax, selected Scottish regions, 2013-14 to 2021-22 Average income tax raised in Aberdeen City overtaken by City of Edinburgh Description of Figure 4.5: Line chart showing taxpayers in Aberdeen and Edinburgh paid higher than the Scottish average between 2013-14 and 2021-22. Source: Scottish Fiscal Commission, HMRC (2024) Statistics about personal incomes. An estimate of the total value of the income tax ‘premium’ from the North East can be obtained by comparing the income tax actually paid by taxpayers in Aberdeen City and Aberdeenshire and the theoretical tax paid if taxpayers in those two areas paid the Scottish average level of tax. This is shown in Figure 4.6. £4,000 £5,000 £6,000 £7,000 £8,000 £9,000 2013-14 2015-16 2017-18 2019-20 2021-22 City of Edinburgh Aberdeen City Scotland Page 84 of 182
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33 Figure 4.6: North East Scotland income tax premium, 2013-14 to 2021-22 The North East Scotland income tax premium has steadily fallen since 2013-14 Description of Figure 4.6: Column chart showing how the North East Scotland income tax premium has gradually fallen from £741 million in 2013-14 to £355 million in 2021-22, peaking in 2014-15 at £758 million. Source: Scottish Fiscal Commission, HMRC (2024) Statistics about personal incomes. In 2013, this premium was worth around £750 million to Scottish income tax revenues, around 6.3 per cent of total income tax revenues. The decline in the premium (compared to a scenario where it had remained static) reduced Scottish income tax revenues by around £386 million (3 per cent) since 2013-14, or £146 million (1 per cent) since 2016-17. As of 2021-22, the premium was still worth around £355 million (2 per cent). If this earnings and income tax revenue premium in Aberdeen City and Aberdeenshire eventually disappears and revenues converge with the Scottish average, this could reduce Scottish income tax revenues further. 0 100 200 300 400 500 600 700 800 2013-14 2015-16 2017-18 2019-20 2021-22 £ million Page 85 of 182
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34 Chapter 5 Social Security Updates since December 2023 5.1 In this section we provide an update on social security spending and funding. We now have provisional outturn for social security spending in 2023-24. Overall, social security spending was £5.3 billion. The latest estimate for the 2023-24 social security Block Grant is £4.4 billion. In terms of the social security net position, this means we estimate spending exceeded the Block Grant Adjustment (BGA) funding by around £0.9 billion. This is in line with our forecasts for 2023-24 from both December 2022 and December 2023. 5.2 When considering the difference between social security spending and the BGA funding it is useful to separate payments into three groups: new payments introduced by the Scottish Government since 2018 with no associated funding; other Scottish Government payments that replaced UK Government payments where funding is within the wider Block Grant; and replacement payments which have associated BGA funding from the UK Government. 5.3 Total spending on the first group of payments, those with no associated funding, was approximately £570 million in 2023-24. Scottish Child Payment (SCP) is the most significant of these payments with spending of £429 million. 5.4 For the second group of payments, where funding is included in the Block Grant and cannot be directly compared, total spending in 2023-24 was around £100 million. 5.5 For the third group, those with associated BGA funding, in 2023-24 the gap between the relevant BGA funding and spending for these payments was £225 million. This difference is broadly in line with our expectations from our forecasts for 2023-24 prepared in December 2022. We attribute the difference to delivery and operational changes to payments to improve the experience of people applying and receiving them leading to additional spending. 5.6 The difference between spending and associated BGA funding is largest for Adult Disability Payment (ADP) and Personal Independence Payment (PIP). The estimated gap between the ADP and PIP outturn spending from 2023-24 and the latest position for the 2023-24 BGA for PIP was £153 million. 5.7 As well as through the higher expenditure outturn, the effect of delivery and operational changes can be seen in the number of people applying for and receiving payments. Figure 5.1 shows successful new applications as a proportion of the 16 to 65 population for ADP in Scotland and for PIP in England and Wales. While there have been increases in successful new applications as a proportion of the population since the COVID-19 pandemic for both PIP in England and Wales and ADP in Scotland, this rate in Scotland has been higher since the Scottish Government introduced ADP to replace PIP in March 2022. Page 86 of 182
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35 Figure 5.1: Monthly flow of successful new applications to PIP and ADP Awards for disability payments have risen in Scotland since the introduction of ADP Source: Scottish Fiscal Commission. Description of Figure 5.1: Line chart showing the number of successful applications to PIP and ADP, expressed as a share of the respective population aged 16 to 65 in England and Wales on the one hand and Scotland on the other. The gap between Scotland and England and Wales widened with the introduction of ADP, but has recently narrowed. Figures may not sum because of rounding. Successful applications to PIP have been estimated using the number of new awards with a duration of less than three months. 5.8 Our assessment is that the gap between spending on devolved social security and the associated BGA funding is the result of policy choices made by the Scottish Government. These choices include the introduction of new payments such as SCP not available elsewhere in the UK, and the operational and delivery changes made when CDP and ADP were introduced. 5.9 We forecast the gap will grow in future years as the operational and delivery changes for disability payments continue to take effect. In December 2023 we forecast total spending on devolved social security in 2024-25 to be around £1.1 billion higher than the funding the Scottish Government receives through the social security BGA, with that gap growing to around £1.5 billion in 2028-29. This gap must be met from the overall Scottish Budget and social security spending will account for an increasing share of the resource budget, rising from 13 per cent in 2024-25 to 15 per cent in 2028-29. Policy context for social security forecasts 5.10 The social security spending forecasts and funding estimates presented above are based on existing UK and Scottish Government policies. In this section we highlight policy announcements since our last forecast and areas where there could be changes in the future. 5.11 The Scottish Government has set up an independent review of ADP. Its work began in February 2024 with the final report due in July 2025. If the Scottish Government decides 0.00 0.05 0.10 0.15 0.20 0.25 0.30 April 2019 April 2020 April 2021 April 2022 April 2023 April 2024 Share of working 16-65 population (per cent) Scotland England and Wales ADP launches Page 87 of 182
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36 to make further changes to ADP in response to the review and these changes lead to an increase in spending, then the social security net position could widen further. 5.12 BGA social security funding that the Scottish Government receives is determined by spending on the equivalent payments in England and Wales, so UK Government changes to those payments can lead to a change in the level of BGA funding. On 29 July 2024 the UK Government announced that from this autumn, Winter Fuel Payment (WFP) eligibility will change and will only be targeted to older people who receive means-tested benefits, rather than everyone over the State Pension age. This is expected to considerably decrease spending on WFP in England and Wales, as currently just over a tenth of the state pension age population is in receipt of the qualifying benefits. Because of this the associated BGA funding for Scotland will proportionally decrease. The Scottish Government estimates this will reduce the BGA by between £140 million and £160 million in 2024-25. 5.13 In response to the UK Government policy change, the Scottish Government has announced that, it will also restrict eligibility for Pension Age Winter Heating Payment (PAWHP), the Scottish Government replacement for WFP, to older people who receive relevant means-tested benefits. Compared to our December 2023 forecast of £180 million for PAWHP in 2024-25, we expect the change will reduce spending by a similar amount to the reduction in BGA funding, £140 million to £160 million. This means we do not expect there to be an effect on the overall gap between spending on social security payments and the funding received through the BGA. 5.14 UK Government changes to disability and carer benefits in England and Wales could also have an effect on social security BGA funding. While there has been no announcements of specific policy changes, in a recent speech on the labour market the UK Government Work and Pensions Secretary referenced OBR forecasts of the rise in spending forecasts for sickness and disability benefits. Also, the previous UK Government held a consultation on a health and disability green paper from April 2024 (prior to the UK General Election) until July 2024. The new UK Government has yet to publish a response to the consultation, but if some of the policy measures proposed in the green paper were to be introduced in England and Wales and reduced spending on PIP, this would reduce the PIP BGA funding and widen the social security net position. 5.15 There are also a number of devolved social security payments where eligibility is determined by receipt of a reserved payment. The most significant of these is SCP where eligibility is usually based on families receiving Universal Credit, or Child Tax Credit. If the UK Government made changes to any of these payments that led to changes in the number of people eligible then there could be an effect on the number of people receiving SCP and total spending. 5.16 For example, the Labour manifesto included a commitment to reviewing Universal Credit. At present there are no details on the scope of the review. One aspect of Universal Credit which has been the subject of discussion recently is the two-child limit. The rule means that families receiving Universal Credit do not receive extra money for third and subsequent children. If the rule was removed then the affected households would see a noticeable rise in their Universal Credit income. We don’t think there would be a substantial increase in SCP eligibility from the removal of the two-child limit because the vast majority of families affected are already receiving Universal Credit. New eligibility would only come from families whose income is currently too high to Page 88 of 182
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37 qualify for Universal Credit, but who would be eligible for a small award if another child element is added to their entitlement. Therefore, with a limited effect on eligibility, we would expect a change to the two-child limit to have a relatively small effect on SCP spending. Page 89 of 182
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38 Annex A Changes to the 2023-24 Budget since December 2023 A.1 Since our December 2023 forecast, the total funding available to the Scottish Government in 2023-24 has decreased by £61 million. The UK Government published its Supplementary Estimates for 2023-24 in late February 2024, which generated Barnett funding.37 The Scottish Government made its final decisions on borrowing and drawdowns at the end of March. We have also had the provisional outturn data. A.2 The Scottish Budget was amended at the Spring Budget Revision (SBR) in February 2024.38 At that point, available funding was £197 million higher than in December 2023. We outline changes to the funding position in two stages: first up to the SBR, and then up to the provisional outturn. A.3 The financial year 2023-24 has now ended, and the provisional outturn position is available. With funding for that year now largely settled, we do not expect to report on 2023-24 again. A.4 Resource funding in 2023-24 has remained largely stable since December 2023, decreasing by £29 million (less than 0.1 per cent change). Figure A.1 shows the changes. The SBR presented to the Scottish Parliament was based on a slightly higher level of funding, but after final funding decisions it fell back by £102 million. 37 HM Treasury (2024) Supplementary Estimates 2023-24 38 Scottish Government (2024) Scottish Budget 2023 to 2024: spring budget revision Page 90 of 182
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39 Figure A.1: 2023-24 Budget – resource funding position over time Source of funding (£ million) Position in Dec 23 Changes up to Feb 24 Position at SBR Changes up to Aug 24 Latest position Block Grant blank blank blank blank blank Barnett baseline [1] 34,942 blank 34,942 blank 34,942 Barnett consequentials 1,399 +260 1,659 +157 1,815 Non-Barnett funding [2] 715 blank 715 blank 715 Fiscal framework funding blank blank blank blank blank Forecast devolved revenues [3] 16,722 -15 16,707 -10 16,697 Tax and non-tax BGAs -16,129 blank -16,129 blank -16,129 Social security BGAs 4,405 blank 4,405 blank 4,405 Adjustment for forecast error, of which: 87 blank 87 +63 150 Reconciliations 46 blank 46 blank 46 Borrowing 41 blank 41 +63 104 Scotland Reserve drawdown 251 blank 251 -1 250 Other sources blank blank blank blank blank Other funding, of which: 863 -172 691 -311 380 Assumed 353 -136 216 -216 Blank Confirmed [4] 510 -36 474 -95 380 Non-Domestic Rates (NDR) distributable amount 3,047 blank 3,047 Blank 3,047 Less: resource borrowing costs -114 blank -114 Blank -114 Less: capital borrowing costs -103 blank -103 Blank -103 Resource funding available for discretionary spend 46,083 +73 46,156 -102 46,054 Source: Scottish Fiscal Commission, Scottish Government. Figures may not sum because of rounding. Amounts exclude IFRS16 funding adjustments. [1] As set in the Spending Review 2021. [2] Funding agreed between the UK and Scottish Governments at the Spending Review 2021 which is not based on the use of the Barnett formula. It comprises £595 million for EU replacement farm funding, £14 million for EU replacement fisheries funding, £26 million for the Bew Review and £80 million for the Rail Resource Grant. [3] These include £34 million for Fines, Forfeitures and Fixed Penalties (FFFPs). [4] The latest position comprises £161 million of Migrant Surcharge, £145 million of Budget Cover Transfers, £27 million of capital-to-resource budget switch over and above what came via the Barnett formula, £26 million of Crown Estate Income, £20 million for a correction to the Home Office comparability factor, and £1 million of resource City Deals. Page 91 of 182
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40 A.5 For the SBR, the Scottish Government estimated an increase of £260 million in Barnett consequentials from the UK Supplementary Estimates 2023-24. By the year-end there was a further increase of £157 million in Barnett consequentials as the confirmed amount from the UK Supplementary Estimates 2023-24 exceeded the Scottish Government's SBR assumptions. A.6 At the time of the SBR, there was a reduction of £15 million in forecast revenues from fully devolved taxes, mostly related to Land and Building Transaction Tax (LBTT). This forecast of LBTT revenues produced by Revenue Scotland included two more months of outturn data compared to our December 2023 forecasts. Subsequently, the provisional outturn data confirmed a further decrease of £10 million in devolved tax revenue, with most of this shortfall also attributed to LBTT. A.7 The Scottish Government decided to increase its borrowing by £63 million for resource spending. A.8 Other funding changes: • There was a reduction of £172 million in other sources of funding, encompassing both assumed and confirmed funds at the time of SBR. This was primarily due to the planned use of ScotWind proceeds being revised down from £460 million to £310 million and a £17 million provision made to manage International Financial Reporting Standard 16 (IFRS 16) adjustments while budget cover was not available. • A further reduction of £311 million from other funding between assumed and confirmed sources has happened since the SBR. The Scottish Government decided to not spend the £310 million of ScotWind proceeds they had planned to use in 2023-24, meaning these could be used in later years. Partly offsetting this decrease in funding were £15 million more Crown Estate income than previously expected, £27 million of capital-to-resource budget switch, and £17 million to undo the IFRS 16 related working provision made at the SBR.39 A.9 Capital funding has also been relatively stable since December 2023, decreasing by £32 million (a fall of 0.5 per cent). Figure A.2 shows the changes to 2023-24 capital funding. 39 The Scottish Government received a guarantee of a £60 million capital to resource budget switch from the HM Treasury. The guarantee was made that these switches would be received organically through the Barnett formula as UK departments agreed capital to resource switches. At UK Supplementary Estimates 2023-24 only £33 million came through as Barnett funding, hence HM Treasury reflected a further £27 million as non-Barnett amounts. Page 92 of 182
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41 Figure A.2: 2023-24 Budget – capital funding position over time £ million Source of funding Position in Dec 23 Changes up to Feb 24 Position at SBR Changes up to Aug 24 Latest position Capital (Excluding financial transactions) Block Grant Barnett baseline [1] 4,757 Blank 4,757 Blank 4,757 Blank Barnett consequentials 63 +56 119 -6 113 Blank Non-Barnett funding [2] 638 Blank 638 --6 632 Fiscal framework funding Capital borrowing 450 Blank 450 -150 300 Blank Scotland Reserve drawdown 30 +3 32 Blank 32 Other funding Other funding, of which: 22 +77 99 +6 105 Blank Assumed 22 +77 99 -99 0 Blank Confirmed [3] 0 Blank 0 +105 105 Total capital funding (excl. FTs) 5,960 +135 6,095 -156 5,939 Financial transactions (FTs) Block Grant Barnett baseline 186 Blank 186 Blank 186 Blank Barnett consequentials -12 -11 -23 Blank -23 Fiscal framework funding Scotland Reserve drawdown 44 Blank 44 Blank 44 Other funding Other funding, of which: 188 Blank 188 188 Blank Assumed 176 Blank 176 -176 0 Blank Confirmed [4] 12 Blank 12 +176 188 Total FTs 405 -11 394 0 394 Total capital funding 6,365 +124 6,489 -156 6,333 Source: Scottish Fiscal Commission, Scottish Government. Figures may not sum because of rounding. Amounts exclude IFRS16 funding adjustments. [1] As set in the Spending Review 2021. [2] £632 million of capital grant funding for Network Rail agreed between the UK and Scottish Governments at the Spending Review 2021. [3] The latest position, confirmed at UK Supplementary Estimates 2023-24, consists of £82 million from capital City Deals, £17 million from Budget Cover Transfers, and £6 million from the UK's Regional Investment Fund. [4] £188 million for a one-off correction of a historical error on FTs funding. Page 93 of 182
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42 A.10 At the time of SBR, the Scottish Government estimated an increase of £45 million in Barnett consequentials from the upcoming UK Supplementary Estimates 2023-24. This was made up of an increase of £56 million in capital and a reduction of £11 million for Financial Transactions (FTs). The publication of the Supplementary Estimates confirmed that capital consequentials exceeded the assumed amount by £36 million. The Scottish Government decided to surrender £27 million of those for the capital-to- resource budget switch and decided to defer £15 million to 2024-25. For FTs the confirmed consequentials were substantially more negative – a reduction of £64 million. HM Treasury have allowed the Scottish Government to defer £54 million to 2024-25. A.11 An increase of £3 million in how much the Scottish Government planned to draw down from the reserve. This was following a revised available balance, as final audited accounts for 2022-23 confirmed the actual capital underspend in that year. A.12 £6 million for Regional Investment Fund were moved from Non-Barnett funding to other funding as it was misclassified as Barnett. This had no net effect on capital funding. A.13 A reduction of £150 million in the amount of capital borrowing taken out at the year-end: £300 million rather than the £450 million previously planned. A.14 An increase of £77 million in assumed other funding (excluding FTs), bringing it to £99 million: £82 million of City Deals and £17 million of Budget Cover Transfers, all of which were confirmed as they emerged by the year-end.40 A.15 The other FTs funding that had been estimated at the SBR were confirmed following UK Supplementary Estimates 2023-24: a correction of £188 million for error in historic allocations of this kind of funding. 40 Budget Cover Transfers (BCT) occur when UK Government departments transfer some of their budget to the Scottish Government. This becomes funding that the Scottish Government can spend but is outside of its Block Grant. Page 94 of 182
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43 Annex B Restated forecasts for new policy baselines B.1 We presented our new approach to policy baselines in a recent occasional paper “How we set policy baselines”.41 In this annex we provide a restated December 2023 forecast for our Scottish income tax, Non-Domestic Rates and Social Security forecasts. We are doing this to show the effect of the change in policy baselines and provide an adjusted starting point for our next budget forecasts. Tax Income tax B.2 Since December 2023, we have amended our baseline for Scottish income tax (SIT) by applying our default baseline assumptions set out in the baselines paper. We now uprate all band thresholds inline with inflation Figure B.1 shows how this new baseline would have affected our December 2023 forecast. Figure B.1: Change in December 2023 SIT forecast from amended baseline £ million 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 December 2023 17,357 18,844 19,873 20,856 22,056 22,981 Baseline change 0 0 -142 -232 -329 -492 December 2023 restated 17,357 18,844 19,732 20,624 21,727 22,489 Source: Scottish Fiscal Commission. B.3 In December 2023, in our baseline we assumed the higher, advanced and top rate tax thresholds would remain frozen. With our new baseline, we assume the higher, advanced and top rate bands rise with inflation. This has reduced our forecast of income tax revenues from 2025-26 onwards, as shown in Figure B.1. B.4 Looking ahead to the next Scottish Budget, we will retain the same approach to baselines as we have used here. Any policy changes will be considered against a baseline of tax bands increasing in line with inflation. Non-Domestic Rates B.5 Since our last forecast, we have amended our baseline for Non-Domestic Rates (NDR). Figure B.2 shows how this new baseline would have affected our December 2023 forecast. This does not include any data released since that publication (such as the 1 April 2024 valuation roll snapshot), nor does it incorporate any model updates made since then. 41 Scottish Fiscal Commission (2024) – How we set policy baselines Page 95 of 182
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44 Figure B.2: Change in December 2023 NDR forecast from amended baseline £ million 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 December 2023 3,007 3,143 3,219 3,600 3,522 3,517 Baseline change 0 0 10 15 20 30 December 2023 restated 3,007 3,143 3,229 3,615 3,542 3,548 Source: Scottish Fiscal Commission. Figures may not sum because of rounding. B.6 The gross NDR for which a property is liable is paid at one of three rates: the Basic Property Rate (BPR), the Intermediate Property Rate (IPR), or the Higher Property Rate (HPR). The rate paid depends on the rateable value of the property and is applied to the entire rateable value, not just to the portion above the relevant threshold. B.7 The Scottish Government sets all three rates each year, as well as the thresholds between the rates. In our December 2023 forecast, we assumed the Scottish Government would increase the BPR (that is, the rate itself, not the threshold) in line with inflation from 2025-26 onwards, but would not change the difference between IPR and BPR, and the difference between HPR and BPR. This meant we assumed the IPR and HPR would increase, but by less than inflation. We assumed thresholds would not change. B.8 Our new baseline is to assume that the Scottish Government increases all three of these rates in line with inflation. This leads to slightly higher forecasts of revenue from the IPR and HPR from 2025-26 onwards. Our assumption that thresholds are fixed remains unchanged.42 Social Security B.9 As set out in our February policy baselines paper, we now assume that the baseline policy position for payments with no statutory requirement to be uprated will be uprated using September Consumer Price Index (CPI) inflation in the previous year. This change affects Best Start Foods, Best Start Grant, Child Winter Heating Payment, Pension Age Winter Heating Payment (PAWHP), and Winter Heating Payment. In Figure B.3, we have excluded the effect of uprating our December 2023 forecast for PAWHP. Presenting this effect relative to our December 2023 forecast would have been inaccurate because of the policy change to restrict the payment older people who receive eligible benefits. B.10 Introducing the baseline uprating assumption increases the social security spending forecast by £2 million in 2025-26, rising to £6 million in 2028-29. 42 Scottish Fiscal Commission (2024) How we set policy baselines Page 96 of 182
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45 Figure B.3: Change in December 2023 social security forecast from amended baseline £ million 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 December 2023 5,299 6,283 6,861 7,253 7,616 7,999 Baseline change, of which 2 4 5 6 Best Start Foods 1 1 1 2 Best Start Grant 1 1 1 2 Child Winter Heating Payment 0 0 1 1 Winter Heating Payment 1 1 2 2 December 2023 restated 5,299 6,283 6,863 7,257 7,621 8,005 Source: Scottish Fiscal Commission (2023) Scotland’s Economic and Fiscal Forecasts – December 2023. Figures may not sum because of rounding. Figure B.4: December 2023 restated forecast, uprated using CPI inflation £ million 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Best Start Foods 14 18 21 21 22 22 Best Start Grant 22 21 22 22 23 23 Child Winter Heating Payment 7 9 10 10 11 12 Winter Heating Payment 22 24 26 26 26 26 Source: Scottish Fiscal Commission. Figures may not sum because of rounding. Page 97 of 182
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46 Abbreviations ABR Autumn Budget Revisions ADP Adult Disability Payment ASHE Annual Survey of Hours and Earnings BGA Block Grant Adjustment BoE Bank of England CDP Child Disability Payment CGT Capital Gains Tax CPI Consumer Price Index EU European Union GDP Gross Domestic Product GFC Global Financial Crisis GVA Gross Value Added FT Financial Transaction HMRC His Majesty’s Revenue and Customs HMT His Majesty’s Treasury HPR Higher Property Rate IFS Institute for Fiscal Studies IPR Intermediate Property Rate LBTT Land and Buildings Transaction Tax LFS Labour Force Survey MTFS Medium Term Financial Strategy NDR Non-Domestic Rates NIESR National Institute of Economic and Social Research OBR Office for Budget Responsibility ONS Office for National Statistics PAYE Pay As You Earn PAWHP Pension Age Winter Heating Payment Page 98 of 182
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47 PIP Personal Independence Payment RTI Real Time Information SBR Spring Budget Revision SCP Scottish Child Payment SEFF Scotland’s Economic and Fiscal Forecasts SFC Scottish Fiscal Commission SG The Scottish Government SIT Scottish Income Tax VAT Value Added Tax WFP Winter Fuel Payment A full glossary of terms is available on our website: Glossary | Scottish Fiscal Commission. Page 99 of 182
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48 Professional standards The SFC is committed to fulfilling our role as an Independent Fiscal Institution, in line with the principles set out by the Organisation for Economic Cooperation and Development (OECD).43 The SFC also seeks to adhere to the highest possible standards for analysis. While we do not produce official statistics, we voluntarily comply as far as possible with the UK Statistics Authority's Code of Practice for Statistics. Further details and our statement of voluntary compliance can be found on our website.44 Correspondence and enquiries We welcome comments from users about the content and format of our publications. If you have any feedback or general enquiries about this publication or the SFC, please contact info@FiscalCommission.scot. Press enquiries should be sent to press@FiscalCommission.scot. All charts and tables in this publication have also been made available in spreadsheet form on our website. For technical enquiries about the analysis and data presented in this paper please contact the responsible analyst: Economy Silvia Palombi Silvia.Palombi@FiscalCommission.scot Public funding Caroline Carney Caroline.Carney@FiscalCommission.scot Tax Will Jones Will.Jones@FiscalCommission.scot Social security Francisco Forner Francisco.Forner@FiscalCommission.scot 43 OECD (2014) Recommendation on Principles for Independent Fiscal Institutions - OECD 44 Scottish Fiscal Commission (2022) Statement of Voluntary Compliance with the Code of Practice for Statistics and Error Policy | Scottish Fiscal Commission Page 100 of 182
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© Crown copyright 2024 This publication is available at www.FiscalCommission.scot ISBN: 978-1-911637-71-4 Published by the Scottish Fiscal Commission, August 2024 Page 101 of 182
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Audit Committee Monday 30 September 2024 Item No 5.3 Internal Audit Work to September 2024 Report by Chief Internal Auditor Report for Decision 1 Recommendations The Audit Committee is asked to: a) Consider the Executive Summary of the final Internal Audit assurance report issued associated with the delivery of the approved Internal Audit Annual Plan 2023/24; b) Note the Internal Audit Consultancy and Other Work carried out in accordance with the approved Internal audit Charter; and c) Acknowledge the assurance provided on internal controls and governance arrangements in place for the areas covered by this Internal Audit work. 2 Purpose of Report/Executive Summary The purpose of this report is to provide members of the Audit Committee with details of the recent work carried out by Internal Audit and the findings and recommended audit actions agreed by Management to improve internal controls and governance arrangements. The Internal Audit Annual Plan 2023/24 was approved by the Audit Committee on 7 March 2023. Internal Audit has carried out work associated with the delivery of the plan to meet its objective of providing an opinion on the efficacy of the Council’s risk management, internal control and governance. An Executive Summary of the final Internal Audit assurance report issued, including audit objective, findings, good practice and recommendations (where appropriate), and the Chief Internal Auditor’s independent and objective opinion on the adequacy of the control environment and governance arrangements within each audit area, is shown in Appendix 1. The Internal Audit function conforms to the professional standards as set out in Public Sector Internal Audit Standards (PSIAS) (2017) including the production of this report to communicate the results of the reviews. Date 18 September 2024 Report Contact: Duncan Stainbank duncan.stainbank@midlothian.gov.uk Page 103 of 182
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2 3 Progress Report 3.1 The Internal Audit Annual Plan 2023/24 was approved by the Audit Committee on 7 March 2023. Internal Audit has completed the following work in the period from 31 May to 18 September 2024 associated with the delivery of the plan to meet its objective of providing an opinion on the efficacy of the Council’s risk management, internal control and governance. 3.2 The Internal Audit function conforms to the professional standards as set out in Public Sector Internal Audit Standards (PSIAS) (2017), including the production of this report to communicate the results. 3.3 Internal Audit issued final assurance reports on the following subject: • Absence Management. • Bowles Report - School Capacity 3.4 An Executive Summary of the final Internal Audit assurance report issued in respect of absence management, including audit objective, findings, good practice and recommendations (where appropriate), and the Chief Internal Auditor’s independent and objective opinion on the adequacy of the control environment and governance arrangements within each audit area, is shown in Appendix 1. The definitions for Internal Audit assurance categories are as follows: Level Definition Comprehensive assurance Sound risk, control, and governance systems are in place. These should be effective in mitigating risks to the achievement of objectives. Some improvements in a few, relatively minor, areas may be required. Substantial assurance Largely satisfactory risk, control, and governance systems are in place. There is, however, some scope for improvement as current arrangements could undermine the achievement of objectives or leave them vulnerable to error or misuse. Limited assurance Risk, control, and governance systems have some satisfactory aspects. There are, however, some significant weaknesses likely to undermine the achievement of objectives and leave them vulnerable to an unacceptable risk of error or misuse. No assurance The systems for risk, control, and governance are ineffectively designed and operated. Objectives are not being achieved and the risk of serious error or misuse is unacceptable. Significant improvements are required. 3.5 The full assurance report of the Bowles Report – School Capacity is included as Appendix 2. This report includes findings good practice and recommendations but has not been graded as we were assessing controls processes across the Council against only very recently identified good practice. Internal Audit Consultancy and Other Work 3.6 Internal Audit staff have been involved in the following for the Council to meet its aims and objectives, and its roles and responsibilities in accordance with the approved Internal Audit Charter and Strategy: a) In its critical friend role provided an independent view and challenge at various forums including: Capital Plan and Asset Management Board, Chief Officers Risk & Resilience Group, Integrity Group, and the Information Management Group. b) Learning and development during the research stage of new audit areas for all Internal Audit team members and through joining virtual audit forums (Computer Audit Sub-group) and meetings; and c) Monitored publication of Audit Scotland reports. Page 104 of 182
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3 Recommendations 3.7 Recommendations in reports are suggested changes to existing procedures or processes to improve the controls or to introduce controls where none exist. The grading of each recommendation reflects the risk assessment of non-implementation, being the product of the likelihood of the risk materialising and its impact: High: Significant weaknesses in existing controls, leaving the Council or Service open to error, fraud, financial loss or reputational damage, where the risk is sufficiently high to require immediate action within one month of formally raising the issue. Added to the relevant Risk Register and included in the relevant Assurance Statement. Medium: Substantial weaknesses in existing controls, leaving the Council or Service open to medium risk of error, fraud, financial loss or reputational damage requiring reasonably urgent action within three months of formally raising the issue. Low: Moderate weaknesses in existing controls, leaving the Council or Service open to low risk of error, fraud, financial loss or reputational damage requiring action within six months of formally raising the issue to improve efficiency, effectiveness and economy of operations or which otherwise require to be brought to attention of senior management. Outwith the report, Internal Audit informs operational managers about other matters as part of continuous improvement. 3.8 The table below summarises the number of Internal Audit recommendations made during 2023/24: Recs Rating 2023/24 Number of Recs High 0 Medium 4 Low 3 Not Graded 9 Sub-total reported this period 16 Previously reported 73 Total 89 Recommendations agreed with action plan 89 Not agreed; risk accepted 0 Total 89 4 Report Implications (Resource, Digital, Risk and Equalities) 4.1 Resource Resource implications of implementing Internal Audit recommendations are considered as part of the audit process to ensure these are reasonable and proportionate to the risks. 4.2 Digital There are no digital implications arising from this report. 4.3 Risk The PSIAS require Internal Audit to evaluate the effectiveness of the Council’s Risk Management arrangements and contribute to improvements in the process. At the start of each audit engagement, to capture potential areas of risk and uncertainty more fully, key stakeholders have been consulted and risk registers have been considered. During each audit engagement the management of risk has been tested. It is anticipated that improvements in the management and mitigation of risks will arise as a direct result of Management implementing the Internal Audit recommendations made. If audit recommendations are not implemented, there is a greater risk of financial loss and/or reduced operational efficiency and effectiveness, and Management may not be able to Page 105 of 182
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4 demonstrate improvement in internal control and governance arrangements, and effective management of risks. 4.4 Ensuring Equalities This report does not relate to a new or revised policy, service or budget change, which affects people (the public or staff), so an Integrated Impact Assessment (IIA) is not an applicable consideration. The Internal Audit work is carried out in accordance with the appropriate legislation and professional standards. The latter includes compliance by those within the Internal Audit function with the Code of Ethics set out in the PSIAS which is appropriate for the profession of Internal Audit founded as it is on trust placed in its independent and objective assurance about risk management, internal control and governance. 4.5 Additional Report Implications (See Appendix A) Page 106 of 182
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5 APPENDIX A – Additional Report Implications A.1 Key Priorities within the Single Midlothian Plan Although this report does not relate directly to the key priorities within the Single Midlothian Plan to which Midlothian Council and its Community Planning Partners have made a commitment (Reducing the gap in economic circumstances; Reducing the gap in learning outcomes; Reducing the gap in health outcomes; and Reducing the impact of climate change), good governance is important to enable Midlothian Council to deliver its key priorities in support of achieving the Council’s objectives. A.2 Key Drivers for Change Key drivers addressed in this report: Holistic Working Hub and Spoke Modern Sustainable Transformational Preventative Asset-based Continuous Improvement One size fits one None of the above Midlothian Council is committed to creating a great place to grow supported by the 9 drivers for change. Implementing the 9 drivers for change in practice is applicable to the Council’s Internal Audit service provision to assist the Council in achieving its objectives. A.3 Key Delivery Streams Key delivery streams addressed in this report: One Council Working with you, for you Preventative and Sustainable Efficient and Modern Innovative and Ambitious A.4 Delivering Best Value The definition of Internal Auditing within the Public Sector Internal Audit Standards (PSIAS) is “Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.” Implementation by Management of the actions associated with Internal Audit recommendations, that are designed to improve internal control and governance arrangements and management of risks, underpins the Council’s own continuous improvement arrangements to enhance its effectiveness, thus supporting the delivery of the Council’s best value duties. Page 107 of 182
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6 A.5 Involving Communities and Other Stakeholders The Chief Internal Auditor is accountable to the Audit Committee which, in fulfilling its governance role, acts as a bridge between the Council and other stakeholders. This report has been presented to Senior Management relevant to the areas audited have agreed the final Internal Audit assurance reports as set out in the relevant Executive Summary within Appendix 1 & report in appendix 2. A.6 Impact on Performance and Outcomes The Findings and Recommendations from Internal Audit work during the year are designed to assist the Council in improving its performance and outcomes. A.7 Adopting a Preventative Approach Internal Audit assurance work includes assessments on when a preventative approach can be adopted. A.8 Supporting Sustainable Development This report does not relate directly to supporting sustainable development. Good governance is important to enable Midlothian Council to achieve its objectives. Page 108 of 182
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Appendix 1 Summary of key findings and recommendations Recommendations Status H M L Subject: Absence Management Category: Assurance – Risk Date issued: 26 June 2024 Draft 04 September 2024 Final Level of Assurance: Substantial for policy and procedures. Limited for the reporting and monitoring of sickness absence, training of managers and absence management documentation. The purpose of the audit was to evaluate the operation of the systems in place for monitoring of absence to ensure maintenance of staff wellbeing in new working environments and capacity for service delivery. Recording of sickness absences, working patterns and calculation of the Statutory Sick Pay (SSP) on the iTrent system (the HR and Payroll system) is administered by the Employment and Reward (E&R) team. All areas (excluding Facilities and Catering services who still use paper forms) have access to the sickness e-form on CS16 to report sickness to the E&R team. Line managers are responsible for reporting sickness to the E&R team on a timely basis to enable sickness records on the iTrent system to be updated. There are intentions to introduce a self- service function for iTrent within the next 12 to 18 months which will allow employees to directly record sickness absences and managers to check/approve them, subject to business case approval and governance that is still to be achieved, aligned to the 21st Century theme of Blueprint Transformation. A Maximising Attendance at Work (MAW) policy is in place, and this details how managers should manage and monitor attendance and provide assistance to employees to enable a supported return to work. Absence triggers and stages of absence monitoring are detailed in the policy and these are different for local government employees and Teachers on Scottish Negotiating Committee for Teachers (SNCT) terms and conditions of employment. There are three stages of monitoring within the policy and reports, which highlight employees reaching an absence trigger, are generated from the iTrent system. MiTeam is a management tool which provides sickness absence information to enable line managers to view absence records for staff they manage. Internal Audit considers that the level of assurance is substantial for policy and procedures. Line managers are making use of the services available to support the wellbeing of employees such as Occupational Health and Physiotherapy and the Employee Assistance Programme (EAP) is being used by employees. Assurance is limited for the reporting and monitoring of sickness absence, training of managers and absence management documentation. Testing highlighted that there was a lack of understanding of how to apply the sickness absence policy by some managers and how / when to apply the various stages of absence 0 4 3 Management have accepted the factual accuracy of the report and its findings and agreed to implement the recommendations. Page 109 of 182
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monitoring and when an employee has met an absence trigger. It also highlighted some absences (7 areas) that had not been reported by Services which could result in absence cases not being managed in line with the policy, overpayments and an underestimate of the performance indicator for the number of days of sickness. Internal Audit made the following recommendations: • Training on managing sickness absence should be provided to managers and the LearnPro Course on Maximising Attendance at Work should be reviewed and updated. Managers should be reminded that sickness absence information should be reported to E&R on a timely basis. (Medium) • The instances where staff have not clocked in and do not have a recorded absence reason should be reviewed and action taken, when appropriate, implementing effective controls. (Medium). • The absence management monitoring report should be updated to include teams from the Chief Executive’s service and consideration given to including absence monitoring stages that have been reached by employees. (Medium) • Documentation should be completed and appropriately retained for all sickness absences. Management should explore whether absence documentation (eg return to work documents / attendance review meetings) can be stored centrally. (Medium) • The Maximising Attendance at Work policy should be reviewed and updated to reflect the audit findings. (Low) • Maximising Attendance at Work information and guidance held on the intranet should be reviewed and updated and any new policies should be communicated to employees. (Low) • HR should consider implementing additional absence performance information such as: Number of employees on absence monitoring stages 1,2 and 3; Number of employees at the capability stage; and Number of employees utilising the Employee Assistance Programme (EAP). The data reports used to generate performance data should be retained. (Low) Page 110 of 182
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Chief Internal Auditor Duncan Stainbank Auditor: Elaine Greaves Appendix 2 Internal Audit Report To Kevin Anderson, Executive Director Place Fiona Robertson, Executive Director Children, Young People & Partnerships Michelle Strong, Education Chief Operating Officer Sinead Urquhart, Executive Business Manager Marc Bedwell, Executive Business Manager Katy Johnstone, Resource Officer Education Fiona Clandillon, Head of Development – Capital and Entrepreneurial Resources Peter Arnsdorf, Senior Manager Planning, Sustainable Growth and Investment Martin Patrick, Lead Officer, Planning Obligations (Acting Up) David Gladwin, Chief Finance Officer and Section 95 Officer Gary Thomson, Senior Finance Business Partner On Bowles Report - School Capacity 18 September 2024 Page 111 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 1 | P a g e 1 Background 1.1 The housing development at Dargavel in Renfrewshire progressed into one of the largest housing developments in Scotland and following a report presented to the Education and Children’s Services Policy Board of Renfrewshire Council highlighting a significant projected shortfall in the capacity at Dargavel Primary School, an independent external review was requested by the Chief Executive of Renfrewshire Council. 1.2 The independent review was subsequently undertaken by David Bowles and a report on the Dargavel Primary School Capacity Shortfall was issued in June 2023. It highlighted significant historic failings of leadership, oversight and risk management in relation to the provision of school accommodation for Dargavel Village. An action plan was developed with all the recommendations being agreed by Management. However, following a review of the 2022/23 Annual Audit Report for Renfrewshire Council and the findings of the independent review, the Controller of Audit referred the issues identified to the Accounts Commission. 1.3 The referral by the Controller of Audit, resulted in a report being issued by the Accounts Commission in January 2024, which concluded that the Commission was concerned that significant risks remain in relation to actions the Council was taking in response to the acknowledged failings and that its governance and scrutiny arrangements would continue to be monitored. A follow up report was published in August 2024 and a further update on progress with some of the remaining issues will be provided in the annual audit report due to be published in September 2024 and the Best Value report which has been brought forward from 2027 to December 2024. Local authorities in Scotland have been urged to note the findings from the reports and consider how improvements can be made to their own processes. 1.4 Following discussions with the Council Executive Director of Children, Young People and Partnerships and the Chief Executive, Internal Audit were asked to review the approach adopted by the Council when projecting the required future school capacity relating to any proposed new housing developments in Midlothian. 1.5 This assurance review will consider the failings identified in the Bowles report, together with the associated recommendations and will measure them against the governance, risk and control framework within Midlothian Council. 2 Scope The scope of this assurance review was to ensure that: 2.1 The Council has an appropriate methodology in place to forecast pupil numbers (including primary, secondary, early years, denominational and ASN requirements); the methodology is regularly reviewed and compared with best practice adopted across the UK and consideration is given to utilising specialist analytical support for large or unusual developments; 2.2 There are appropriate internal governance processes in place including adequate senior officer oversight, appropriate review of modelling outputs and formal reporting of the approach taken for the planning of new educational facilities and / or the utilisation of spare capacity across Midlothian (for both long-term and short-term increases); 2.3 The Council has and maintains up to date supplementary guidance to the development plans clearly indicating the approach to developer contributions based on identified need, and the guidance is utilised when completing developer contribution agreements; 2.4 Proposed education asset developments are reported at appropriate stages through the Council’s internal governance process. Adequate engagement with the local community is undertaken and consultation responses are appropriately responded to prior to legal agreements being completed; and Page 112 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 2 | P a g e 2.5 Risks including inaccurate pupil projections, non or lower payment of developer contributions as a result of clauses in developer agreements, inflationary costs or additional asset requirements are clearly recognised, recorded and formally discussed with those charged with Governance and appropriate mitigations are identified and monitored to implementation. 3 Findings For the key objectives, the following points were noted: The Methodology for Forecasting Pupil Numbers 3.1 The Education Service undertook a review of the school roll projection methodology in December 2021. This review was undertaken to refresh and update school roll projections, evaluate existing methodologies and calculations. The methodology and data were then benchmarked against other local authorities with similar levels of demographic growth. The data is reviewed bi- annually against the Housing Land Audit and census data and birth data and stay on rates are also factored in. A spreadsheet is used for the projections and this is updated with new data every six months and is checked every 3 months. Every time an update is undertaken, this is saved as a new version to maintain the integrity of the data and provide an audit trail. 3.2 Education use the most up to date information available within the SEEMiS system for relevant schools and catchment areas. This data includes the latest school rolls, pupil enrolments / leavers (including pre-school as relevant), pupil address data, potential P1 deferrals, and P1 and S1 intake data. Regular meetings are held with the Pupil Placement team regarding anticipated rolls and to discuss placing requests, deferrals etc. 3.3 The main annual pupil roll projections are produced from the latest validated baseline data for each data source and the Council’s Housing Land Audit (HLA), which is based on completion rates from sites and discussions with developers and landowners in respect of individual housing sites - either with planning permission or allocated in the Midlothian Local Development Plan (LDP). Whilst regular meetings are undertaken between Planning and Education, the Learning Estate Resource Officer advised that it would be useful if Planning could add the catchment area for each development using the ARC GIS system as it is quite onerous for them to do. 3.4 The projections will include any updates from the NHS on data relating to births across Midlothian, (this has a significant impact on the baseline birth to P1 migration rate in the catchment areas). 3.5 The new build/child house ratio (pupil product) applied in Midlothian is 0.28 for primary schools (0.02 denominational) and 0.2 for secondary schools. A ratio is applied for the percentage of children from each residential unit who are likely to be in a specific year (these percentages have been cross checked against comparative local authorities). This is fed into the annual pupil roll projections, whilst taking into consideration a number of the variables highlighted above. For comparison, the Bowles Report stated that an average of 0.136 pupils per residential unit had been applied in the projections for Dargavel Primary School in Renfrewshire. 3.6 Past experience from housing developments of a similar size is not used as a guide for the calculation of the P1 intake rate from the number of houses however, Education advised that they are undertaking a review of the predicted figures to the actual figures and may adjust the pupil product ratio based on the previous 2 years projections. It has been advised that this process is currently ongoing as part of the yearly update which coincides with the release of the 2024 Housing Land Audit and no decisions have been undertaken yet as a result. Page 113 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 3 | P a g e 3.7 It was advised that they have reviewed other local authorities to try and predict when the peak will come from house building (eg for Dunbar it was 8 years after building commenced). The percentage of pupils estimated for P1s has been adjusted to 20% (less for other years but weighted to earlier year groups) to take into account previous experience. It was noted that the Roll Projections Procedure does not detail the determined percentage for each primary year group and it has been advised that this will be updated (the spreadsheet does include this data). 3.8 The roll projections do not account for children that are privately educated. It was advised that there is no data available to include this but if there are changes in the forecasted data, then an analysis would be undertaken to determine the reason. The Executive Business Manager advised that this would be discussed in Scotland wide forums and would be monitored given increased risks of changes in historic patterns in future years. 3.9 Testing of the spreadsheet highlighted a number of minor errors and it has been advised that these were human errors and have now been updated. The spreadsheet is regularly checked by the Principal Data Officer to ensure that the integrity of the spreadsheet is satisfactory – the minor errors identified had minimal impact (cells were referring to the incorrect years which were out by 1 year). 3.10 The roll projections methodology does not include any provision for Additional Support Needs. It has been advised that this is being reviewed and the Council is actively working to obtain the NHS / Health Visitor data to enable it to be incorporated into the calculations (there was a recommendation in the Bowles report that Health Visitor data be included in the forecasting methodology). 3.11 An external analytics company, who have been used by other local authorities in Scotland, have been commissioned to run their modelling software on the Council’s data to provide assurance over the methodology used (this was one of the recommendations from the Bowles report). Internal Governance Structures 3.12 The 2017-2047 Midlothian Learning Estate strategy was agreed at a meeting of full Council on 26 September 2017. Council agreed the short-term strategy (2017-2023) as well as acknowledging the essential requirement and benefits of preparing a long- term strategy for the Learning Estate. Council noted the indicative strategy for the medium and longer terms, which were to be the subject of review and regular reporting to Council. An update to the 2017 Learning Estate Strategy was presented to full Council on 7 May 2019 and a further update was presented to Council on 20 August 2019. A further update report was presented on 13 Dec 2022. There is a risk that without having a Learning Estate Strategy in place the Council will not secure the appropriate level of S75 contributions required to deliver additional capacity arising from housing developments. 3.13 A Children Young People and Partnerships Estate Programme Board (CYPE) has been established and it is responsible for the delivery of each capital and asset management programme by monitoring the progress of the Children & Young People Estate programme and use of resources as well as provide strategic oversight and technical input into the projects within the programme – the terms of reference state that it will meet monthly. Minutes are produced for meetings and CYPE programme dashboards are submitted to the Capital Plan and Asset Management Board (CP&AMB) for discussion. The Capital Plan and Asset Management Board has overall accountability for the delivery of Midlothian Council’s Capital Plan, which includes investment in schools, housing, regeneration and development, energy and city regional deal projects. The role is to ensure a joined-up approach to deliver the strategic objectives of the Corporate Asset Management Strategy and Capital Investment Strategy, manage overall plan delivery and the appropriate budgets. Papers are sent to Council for governance / decision making where required. It was noted that the CYPE has not met since February 2024 however the CYPE programme dashboards are updated monthly and were submitted to the CP&AMB in March, April, June and August. Major school building projects have their own Page 114 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 4 | P a g e project boards and these feed into the CYPE programme dashboards. In addition, it was seen that Board members agreed actions by email to ensure projects could move forward. 3.14 An ASN Estate and Review Report dated Feb 2024 was discussed at the last CYPE meeting and this stated that that ‘Our ASN team in early years are made aware of children within the early years setting, this information is now beginning to feed into our longer-term planning to meet the needs of children as they transition into P1, however this information is not yet sufficiently reliable enough to make informed predictions. The service anticipates this will improve significantly over the coming years as we develop the data sharing protocols with the NHS. We are on an improving journey regarding the knowledge and information required to fully understanding the range of needs required for the future. Whilst we have improved data, we continue to work with our partners in health to ensure we have robust and reliable data to inform our decisions. Public Health Scotland have provided an overview of developmental checks for 0–5-year-olds. The data above doesn’t tell us where these children live or the specific need that we should plan for. The service anticipates this will improve significantly over the coming years as we develop the data sharing protocols with the NHS.’ This report has subsequently been discussed and strategy moved forward with discussion at the Council CMT. Developer Contributions 3.15 The planning system allows mitigation to be sought from developers towards delivering infrastructure capacity as a result of their development or to make the development more acceptable. The Supplementary Guidance was prepared to assist landowners, developers and applicants, and sets out the items and circumstances for which financial contributions will be sought to make the proposed development acceptable in planning terms, including capacity for a transport network, education facilities, affordable housing, sports facilities, environmental mitigation and health and social care facilities. 3.16 The supplementary guidance for developer contributions is dated 6 March 2012 and is on the Council’s intranet however the guidance is out of date and there is no provision within the guidance relating to education for ASN (the requirement to update the guidance has already been recommended in the Developer Contributions report dated December 2023). 3.17 The guidance states the following: The likely number of school age children generated by planned (and windfall) housing development is taken into account in assessing whether the catchment school has any capacity. Contributions are sought for non- denominational and denominational schools at primary and secondary levels. For non-denominational schools, a pupil ratio of 0.28 children per house/unit for primary school and 0.2 for secondary school is used to calculate the likely number of pupil places arising from allocated housing developments and from windfall housing developments. For denominational schools, the ratios are 0.028 children per house/unit for primary and 0.02 for secondary. Pupil generation is then assessed against the existing school roll and any spare operating capacity of the relevant catchment school for the proposed development. Requirements for additional provision are identified and contributions are sought where no capacity exists or where existing capacity is insufficient to meet the need arising.’ 3.18 These are the same figures utilised in the roll projections spreadsheet however this differs from the 2017-2047 Midlothian Learning Estate Strategy which contains substantially different primary pupil product ratios including a varied number of pupil product ratios depending on catchment. The 2017-2047 Midlothian Learning Estate strategy therefore requires to be updated with the current pupil product ratios and published on the Council's website. 3.19 The Council’s current development plan was approved in 2017 and is currently in the evidence gathering and engagement stage for preparation of MLDP2 which will replace the current MLDP and will run for a 10-year period from 2026 to 2036. The Midlothian Local Development Plan 2 (MLDP2) Evidence Report was presented to the Planning Committee in April 2024 and full Council in June 2024 and the pupil product ratios detailed reconcile to the roll projections spreadsheet (although not the 2017 LES). It states Page 115 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 5 | P a g e that ‘the pupil product ratios for Midlothian were reviewed at the beginning of 2022 as part of a wider update of the Learning Estate Strategy. These were established based on previous school roll data in conjunction with analysis of comparator local authorities. These ratios are reviewed annually. 3.20 The S75 developer contributions are subject to indexation using the BCIS All-in Tender Price Index. In estimating the costs of new schools and extensions, the Council uses the amount per m2 from the most recent projects completed and metrics garnered from completed projects from all over Scotland in conjunction with the SFT (Scottish Futures Trust) and applies this to the calculation for developer contributions. Increases in construction costs have significantly outweighed the increases in indexation which will result in significant funding gaps for new schools where developer contributions were secured at a lower amount per m2, than the amount per m2 at today’s prices. However, we were informed that S75 developer agreements do not include a clause to protect the Council against the risk of any unexpected or unusual increases in construction costs. Local Community Consultation 3.21 Formal statutory schools’ consultations recently took place for the following schools: Beeslack High School, Easthouses Primary School, Glencorse Primary School, Mayfield Early Learning Centre, Mayfield Additional Support Needs (ASN) and St Margaret’s RC Primary School. These were undertaken in accordance with the Schools (Consultation) (Scotland) Act 2010, and the proposals were formally approved by Council. 3.22 It was found that whilst public meetings had been held for all consultations as is required by legislation, these were poorly attended. Management advised that the Council fulfilled its statutory duties by organising and facilitating these; the numbers of attendees is out with their control. Also, the majority of respondents do so online; the Council now has an online portal (Citizen Space) where all information pertaining to each consultation is held, there is also an online questionnaire, which for the recent school consultations, MLC have received a large number of responses. Online drop-in sessions and both online and paper surveys are also offered as standard practice during every consultation. Meetings are also offered to parental bodies and staff as well as consulting with pupils. Although public meetings are not always well attended, we regularly receive a high number of responses through our online consultation hub. Risk Management 3.23 Risks in relation to Growing Council and Asset Management appear in the Council’s Strategic Risk Profile, and these are updated on a quarterly basis and reported to the Audit Committee. They are both rated as Medium risks and have up to date notes. In addition, risks are detailed in the CYPE Dashboard, and these are discussed at the Children Young People and Partnerships Estate Programme Board and the Capital Plan and Asset Management Board. It was noted that service risk registers haven’t been kept up to date, but this is a common theme and has been highlighted in the audit of Risk Management with a subsequent recommendation raised to address this. 3.24 Risks that are detailed as red (high) in the September 2024 CYPE Dashboard include: Mayfield/St Lukes, Shawfair All Through and Penicuik High School. 3.25 The CYPE dashboard states that: ‘for the Shawfair schools’ solution, the project is currently estimated for 2027/28 delivery. Alternative solutions for capacity are to be reviewed. There is an educational risk due to the amount of house building and any delay to the programme will have a significant impact. There are pressures on the current hosting schools of Danderhall PS and Dalkeith High School which are both due to breach. Project team has been appointed and a design team engaged to provide a Page 116 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 6 | P a g e costed solution for a stage 2 design for an all through campus. A May 2024 Brief was agreed and further costed options were requested - awaiting fee proposal from Dalkeith SPV to look at a proposed extension there and this will be presented as a project proposal once complete to a CPAMB meeting.’ It has been advised that there are approx. 650 houses already built and there is no cap to the rate of house building - building is currently slow and steady but there is an urgent need to determine what the educational solution will be moving forward. Planning stated that they requested for the external analysis of pupil forecasting to include modelling for Shawfair and is has been advised that this has been requested to be completed at the earliest stage of this analysis. 4. Conclusion Based on our review, the approach adopted within the Council for pupil roll projections from major housing developments is considered reasonable, however some improvements can be made to ensure that the Council has a fully effective process in place. 5. Recommendations 5.1 Recommendation 1: The catchment area for each development should be added to the Housing Data Main Schedule spreadsheet using the ARC GIS system before this is sent to Education. Management Response Agree with colleagues that meeting every two weeks helps to alleviate this issue however if these meetings cannot take place there is no fall back so having the catchment included as standard would help with this. Responsible Officer and Target Date Katy Johnstone / Martin Patrick December 2024 5.2 Recommendation 2: Relevant officers should undertake an annual review of the new build / child house ratios used in the annual pupil roll projections to ensure that they remain accurate and up to date. This should be reported to the CYPE Board on an annual basis. Management Response Agreed. Responsible Officer and Target Date Katy Johnstone June 2025 5.3 Recommendation 3: The Roll Projections Procedure should be updated to include the determined percentage allocated for each primary year group. Management Response Agreed. Responsible Officer and Target Date Katy Johnstone December 2024 Page 117 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 7 | P a g e 5.4 Recommendation 4: The concept of including a figure for expected numbers of children who are privately educated within the roll projections methodology should be explored as part of regular reviews of the pupil role projection. Management Response The education service will only be able to develop an estimate on the number of children attending private school given some families move into the area and do not register with a local school as their children may continue to attend a private school. Our estimate will be based on those in our nursery provision who choose to enter P1 at a private school and those who leave to move to a private school from another stage. We will speak to other authorities through our communication forums and use assumed best practice. Responsible Officer and Target Date Marc Bedwell June 2025 5.5 Recommendation 5: The frequency of the CYPP Board meetings should be reviewed and aligned with the Capital Asset and Management Board and include the minutes of any additional individual Project Board meetings on the Capital Asset and Management Board agenda (given the number and frequency of additional Boards required for large projects). Management Response The CYPE has not met recently due to absence, sickness and other related meetings. It should be noted that there are established project boards for Beeslack, Penicuik, Easthouses, and Mayfield projects and update reports are produced that feed into the governance process at CYPP Estates and CP&AMB. Responsible Officer and Target Date Fiona Robertson December 2025 5.6 Recommendation 6: Consideration should be given to incorporating ASN needs into the pupil roll projections to ensure that any additional class spaces required are identified. In addition, the ASN Estate and Review Report should be taken forward to discussion at the Capital Plan and Asset Management Board. Management Response There has been significant ongoing work on a pan Lothian basis to obtain NHS and Public Health Scotland data and ensure ongoing data sharing agreements. This data is now beginning to be delivered and a pan Lothian process being developed that will result in a methodology being developed. Given recent increases in ASN need, careful evaluation of multi-year data will be required to identify the additional class spaces required. Responsible Officer and Target Date Fiona Robertson December 2025 to develop a methodology. Page 118 of 182
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Midlothian Council Internal Audit Report – Bowles Report - School Capacity 8 | P a g e 5.7 Recommendation 7: The 2017-2047 Midlothian Learning Estate strategy approved in 2017 should be updated to include the correct pupil product ratios and the updated version should be published on the Council's website. Management Response Agreed this is already scheduled for development and will update the wording in relation to pupil product ratios. The Learning Estate Strategy will be refreshed when new set of roll projection data is available and Edge analytics have run their model. It should be noted that the approved priorities at Dec 2022 are all in planning, have been delivered, or have begun. Responsible Officer and Target Date Kevin Anderson/Fiona Robertson June 2025. 5.8 Recommendation 8: Consideration should be given to including a clause in S75 developer agreements to protect the Council against the risk of any unusual or unexpected increases in construction costs e.g. large increases in the price of materials or additional legislative requirements for climate change. Management Response Clauses may be legally possible but how workable they are in a real-world scenario may be limited as the unlikely potential of transferring an unlimited risk to developers. However, a review of clauses being used by other authorities will be completed to ensure that we are in line with best practice. Responsible Officer and Target Date Kevin Anderson December 2024 for completion of review. 5.9 Recommendation 9: Following the external review of pupil forecasting, risks and ratings relating to school capacity / building should be reviewed and updated where applicable. Management Response Agreed. Responsible Officer and Target Date Kevin Anderson/Fiona Robertson June 2025 Page 119 of 182
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Audit Committee Monday 30 September 2024 Item No 5.4 Audit Committee Annual / End of Term Report 2023/24 Report by Chair of the Audit Committee Report for Decision 1 Recommendations The Audit Committee is asked to approve the Audit Committee Annual / End of Term Report 2023/24 (Appendix 1) and its self-assessments using the CIPFA Audit Committees Guidance (Appendices 2 and 3) and agrees that the Audit Committee Annual / End of Term Report 2023/24 should be presented to the Council. 2 Purpose of Report/Executive Summary The purpose of this report is to provide Members with the Audit Committee Annual / End of Term Report 2023/24, which sets out how the Audit Committee has performed against its remit and the effectiveness of the Audit Committee in meeting its purpose based on the annual self-assessments of the Committee against best practice and provides assurances to the Council. It is important that the Council’s Audit Committee fully complies with best practice guidance on Audit Committees to ensure it can demonstrate its effectiveness as a scrutiny body as a foundation for sound corporate governance of the Council. The Chartered Institute of Public Finance and Accountancy (CIPFA) Audit Committees Practical Guidance for Local Authorities and Police 2022 Edition (hereinafter referred to as CIPFA Audit Committees Guidance) includes the production of an annual report on the performance of the Audit Committee for submission to the Council. The Audit Committee Annual / End of Term Report 2023/24 is appended to this report as Appendix 1 for consideration. Date 11 September 2024 Report Contact on behalf of the Chair of the Audit Committee: Duncan Stainbank Tel No 01620 827353 duncan.stainbank@midlothian.gov.uk Page 121 of 182
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2 3 Background 3.1 It is important that the Council’s Audit Committee fully complies with best practice guidance on Audit Committees to ensure it can demonstrate its effectiveness as a scrutiny body as a foundation for sound corporate governance for the Council. 3.2 The Chartered Institute of Public Finance and Accountancy (CIPFA) issued an updated guidance note Audit Committees Practical Guidance for Local Authorities and Police 2022 Edition (hereinafter referred to as CIPFA Audit Committees Guidance). It incorporates CIPFA’s Position Statement: Audit Committees in Local Authorities and Police which sets out CIPFA’s view of the role and functions of an Audit Committee. 3.3 The CIPFA Audit Committees Guidance includes the production of an annual report on the performance of the Audit Committee against its remit for submission to the Council. 4 Audit Committee Annual / End of Term Report 2021/22 and Self- Assessments 4.1 The Audit Committee carried out self-assessments of Compliance with the Good Practice Principles Checklist and Evaluation of Effectiveness Toolkit from the CIPFA Audit Committees Guidance by completing questionnaires during Juily and August 2024. The combined self-assessments are appended to this report as Appendix 2 (Good Practice Principles) and Appendix 3 (Effectiveness) for consideration. 4.2 The outcome of the self-assessments was a medium/high degree of compliance against the good practice principles and an improving and medium degree of effectiveness. Improvements were identified focussing on activity to improve its effectiveness in fulfilling its role. In summary these are: • Utilise the CIPFA Skills and Knowledge toolkit responses from all members of the Committee to identify development needs and any requirements for the consideration of any potential Independent Member recruitment, formulate a plan for any development needs. • Continue to obtain feedback on its performance in fulfilling all aspects of the Committee’s remit from a range of Executive Directors and others who interact with the Committee to support continuous learning and improvement. • Continue to rely on the knowledge of those members appointed to other Committees, to evaluate their effectiveness in fulfilling remits, on which the Audit Committee places reliance. • Continue to ensure appropriate scrutiny and challenge on its Action Log to ensure that Audit Committee recommendations have been recorded and monitored to ensure they are fully implemented to its satisfaction. • Schedule a recruitment, selection and appointment process for independent members of the Audit Committee within the next year. • Move to 4 scheduled meeting of the Audit Committee each year from the 7 meetings currently scheduled, whilst retaining the capability to call further meetings when required. Page 122 of 182
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3 4.3 The Audit Committee Annual / End of Term Report 2023/24 is appended to this report as Appendix 1 for consideration. Midlothian Council continues to adopt this best practice. It is designed both to provide assurance to full Council and to share lessons learned and areas of improvement. 5 Report Implications (Resource, Digital, Risk and Equalities) 5.1 Resource The Council has provided support and resources to the Audit Committee throughout the year including a Democratic Services Officer as the Minute secretary. In terms of accountability and independence to ensure conformance with the Public Sector Internal Audit Standards (PSIAS), the Chief Internal Auditor reports functionally to the Audit Committee as outlined within the Internal Audit Charter. The Chief Internal Auditor facilitated the annual self-assessment process and the prepared the Audit Committee Annual / End of Term Report on behalf of the Chair. 5.2 Digital There are no digital implications arising from this report. 5.3 Risk The role of the Audit Committee includes the high level oversight of the effectiveness of the Council’s systems of internal financial control, internal control and governance, including risk management. There is a risk that the Audit Committee does not fully comply with best practice guidance thus limiting its effectiveness as a scrutiny body as a foundation for sound corporate governance. The completion of the annual self-assessment and identification of improvement actions as evidenced through this Annual / End of Term Report will mitigate this risk. 5.4 Ensuring Equalities This report does not relate to a new or revised policy, service or budget change, which affects people (the public or staff), so an Integrated Impact Assessment (IIA) is not an applicable consideration. 5.5 Additional Report Implications (See Appendix A) Page 123 of 182
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4 APPENDIX A – Additional Report Implications A.1 Key Priorities within the Single Midlothian Plan Although this report does not relate directly to the key priorities within the Single Midlothian Plan to which Midlothian Council and its Community Planning Partners have made a commitment (Reducing the gap in economic circumstances; Reducing the gap in learning outcomes; Reducing the gap in health outcomes; and Reducing the impact of climate change), good governance is important to enable Midlothian Council to deliver its key priorities in support of achieving the Council’s objectives. A.2 Key Drivers for Change Key drivers addressed in this report: Holistic Working Hub and Spoke Modern Sustainable Transformational Preventative Asset-based Continuous Improvement One size fits one None of the above Midlothian Council is committed to creating a great place to grow supported by the 9 drivers for change. Self-assessment of the Audit Committee utilising best practice toolkits underpins its own continuous improvement to ensure that modern and sustainable governance arrangements are in place. A.3 Key Delivery Streams Key delivery streams addressed in this report: One Council Working with you, for you Preventative and Sustainable Efficient and Modern Innovative and Ambitious A.4 Delivering Best Value Self-assessment of the Audit Committee utilising best practice toolkits underpins its own continuous improvement to enhance its effectiveness as a scrutiny body as a foundation for sound corporate governance of the Council, thus supporting the delivery of the Council’s best value duties. Page 124 of 182
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5 A.5 Involving Communities and Other Stakeholders The Audit Committee in fulfilling its governance role acts as a bridge between the Council and other stakeholders. A.6 Impact on Performance and Outcomes The members of the Audit Committee have reflected on the performance and outcomes against the remit of the Committee through the completion of annual self-assessments. The identification of improvement actions as evidenced through the Audit Committee Annual / End of Term Report are designed to enhance its effectiveness as a scrutiny body as a foundation for sound corporate governance of the Council. A.7 Adopting a Preventative Approach Assurances received by the Audit Committee from Management, Internal Audit and External Audit set out the assessment of prevention and detection internal controls and governance arrangements. A.8 Supporting Sustainable Development This report does not relate directly to supporting sustainable development. Good governance is important to enable Midlothian Council to achieve its objectives. Page 125 of 182
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1 APPENDIX 1 MIDLOTHIAN COUNCIL AUDIT COMMITTEE ANNUAL/END OF TERM REPORT FROM THE CHAIR – 2023/24 This annual/end of term report has been prepared to inform the Midlothian Council of the work carried out by the Council’s Audit Committee during the year 2023/24. The content and presentation of this report meets the requirements of the CIPFA Audit Committees Practical Guidance for Local Authorities and Police 2022 Edition (hereinafter referred to as CIPFA Audit Committees Guidance) to report to full Council on a regular basis on the Committee’s performance in relation to the terms of reference and the effectiveness of the Committee in meeting its purpose. Meetings There were meetings of the Audit Committee 5 times during the financial year which included meetings on 26 June 2023, 30 October 2023, 5 December 2023, 29 January 2024 and 18 March 2024 to consider reports pertinent to the audit cycle and its terms of reference. Additionally at the start of the 2023/24 financial year a meeting has been held on the 24 June 2024. The Audit Committee is a key component of Midlothian Council’s corporate governance. It provides an independent and high-level focus on the audit, assurance and reporting arrangements that underpin good governance and financial standards. The purpose of the audit committee is to provide independent assurance to elected members of the adequacy of the risk management framework and the internal control environment. It provides independent review of Midlothian Council’s governance, risk management and control frameworks, and oversees the financial reporting and annual governance processes. It oversees internal and external audit, helping to ensure efficient and effective assurance arrangements are in place. The Audit Committee reviewed the draft Annual Governance Statement 2022/23 at its meeting on 26 June 2023, and for 2023/24 at its meeting on the 24 June 2024 in order to assess whether it properly reflects the risk environment and whether the content is consistent with its evaluation of the internal controls and governance arrangements based on evidence received during the year. The Audit Committee scrutinised the unaudited Annual Accounts 2023/24 of the Council at its meeting on 24 June 2024 and for a period until publication later in the month. It reviewed the final audited accounts for 2022/23 at its meeting on 30 October 2023, alongside the External Audit report on their annual audit 2022/23 to consider any concerns or improvements arising from the audit, prior to recommending to the Council that they be adopted. The Audit Committee scrutinised the Annual Report and Accounts of the Council at appropriate times in accordance with its terms of reference, which also includes the promotion of good governance, and financial and ethical standards. The Audit Committee approved the Internal Audit Charter, and the Internal Audit Strategy and Annual Plan. It monitored Internal Audit’s performance including progress against annual plan, conformance with Public Sector Internal Audit Standards (PSIAS), and quality assurance and improvement plan (QAIP) within Internal Audit mid-term performance and annual assurance reports, and considered the statutory annual audit opinion within the Internal Audit Annual Assurance Report. It considered Internal Audit’s reports which set out executive summaries of findings, audit opinions, good practice and recommendations associated with each assurance review, as well as other work. It monitored the implementation of agreed actions through receipt of two reports during the year from Internal Audit. The Audit Committee has reviewed the External Audit Strategy and Plan Overview for Midlothian Council, considered External Audit reports including the annual report to Members and the Controller of Audit on the annual audit of the Council, reviewed the main issues arising from the External Audit of the Council’s statutory accounts, and monitored the implementation of agreed actions arising. The Audit Committee received quarterly update reports from the Chief Officer Place during the year on strategic risks and mitigations. The Internal Audit Report on risk management concluded that Page 127 of 182
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2 level of assurance was substantial in relation to the Council’s Risk Management Policy and application of the policy at a strategic level. This review recommended some improvements to risk reporting to the Audit Committee to provide an update on the status of service risk registers in compliance with the Risk Management Policy which is due to be implemented by the start of 2025. The Audit Committee considered the adequacy and effectiveness of the Council’s counter fraud arrangements by way of an annual report which set out the counter fraud activity and outcomes associated with the refreshed Counter Fraud Policy and Strategy approved by Council in August 2020. The Audit Committee is the governance body responsible for scrutiny of the treasury management strategy, mid-term and annual performance reports prior to their presentation to Council for approval, in accordance with the CIPFA Treasury Management Code of Practice. This scrutiny occurred during 2023/24 at Audit Committee meetings including the Annual Treasury Management Outturn Report 2022/23 and a 2023/24 Credit Risk Update in June 2022, the Treasury Management Mid-Year Review Report 2023/24 in December 2023, and the Treasury Management and Investment Strategy 2024/25 & Prudential Indicators in January 2024. The minutes of Audit Committee meetings were presented for approval by the Council, and any exceptional items or recommendations were referred to the Council in accordance with the remit. Membership The Membership of the Audit Committee reflects the Council’s approved Scheme of Administration i.e. there should be a one third equal split on all Committees reflecting the number of Councillors for each political party (May 2022), being five Members of the Council. A recruitment advert for an Independent Audit Committee Chair and Member was issued in May 2022, however no candidates applied for these positions, as a result agreement to rotate the Chair across the three political parties was agreed. The lack of independent members does not comply with the CIPFA Position Statement which recommends that each authority audit committee should include at least two co-opted independent members. However, this situation is similar to many Local Authority Audit Committees. The Committee membership during the year included Councillors D Bowen, D McCall, W McEwan, D Milligan (Chair from September 2023), and P Smaill (Chair until September 2023). The attendance by each member at the Committee meetings throughout the year was as follows: Member 26 June 2023 30 October 2023 5 December 2023 29 January 2024 18 March 2024 Cllr D Bowen √ √ √ √ √ Cllr D McCall √ √ √ √ X Cllr W McEwan X √ X √ √ Cllr D Milligan X X √ √ √ Cllr P Smaill √ √ √ √ √ Cllr Russell (as substitute) - √ - - - Cllr Imrie (as substitute) - - √ - - Every Audit Committee meeting in 2023/24 was quorate and attended by all members. All other individuals who attended the meetings are recognised as being “In Attendance” only. The Chief Executive, Executive Directors, Chief Financial Officer(Section 95 Officer), External Audit (Audit Scotland), and Internal Audit attend all Audit Committee meetings, and other senior officers also routinely attend Audit Committee meetings. The Council has provided support and resources to the Audit Committee throughout the year including a Democratic Services Officer as the Minute secretary. Page 128 of 182
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3 Skills and Knowledge Given the wider corporate governance remit of Audit Committees within local government and the topics now covered by the external and internal audit functions, it is noteworthy that there is a range of skills, knowledge and experience that Audit Committee members bring to the committee, not limited to financial and business management. This enhances the quality of scrutiny and discussion of reports at the meetings. No one committee member would be expected to be expert in all areas. Self-Assessment of the Committee An annual self-assessment was carried out by members of the Audit Committee during August 2024 using the Good Practice Principles Checklist and Evaluation of Effectiveness Toolkit from the CIPFA Audit Committees Guidance. This was useful for Members to ensure the Committee can demonstrate its effectiveness as a scrutiny body as a foundation for sound corporate governance of the Council. The outcome of the self-assessments was a medium/high degree of compliance against the good practice principles and an improving and medium degree of effectiveness. Improvements were identified focussing on activity to improve its effectiveness in fulfilling its role. In summary these are: • Utilise the CIPFA Skills and Knowledge toolkit responses from all members of the Committee to identify development needs and any requirements for the consideration of any potential Independent Member recruitment, formulate a plan for any development needs. • Continue to obtain feedback on its performance in fulfilling all aspects of the Committee’s remit from a range of Executive Directors and others who interact with the Committee to support continuous learning and improvement. • Continue to rely on the knowledge of those members appointed to other Committees, to evaluate their effectiveness in fulfilling remits, on which the Audit Committee places reliance. • Continue to ensure appropriate scrutiny and challenge on its Action Log to ensure that Audit Committee recommendations have been recorded and monitored to ensure they are fully implemented to its satisfaction. • Schedule a recruitment, selection and appointment process for independent members of the Audit Committee within the next year. • Move to 4 scheduled meeting of the Audit Committee each year from the 7 meetings currently scheduled, whilst retaining the capability to call further meetings when required. These actions will all be taken forward during 2024/25. Assurance Statement to the Council The Audit Committee provides the following assurance to the Council: • The Council has received the Minutes of the Audit Committee throughout the year. • The Audit Committee has operated in accordance with its agreed terms of reference, covering the themes of Governance, Risk and Control, Internal Audit, External Audit, Financial Reporting, and Accountability Arrangements, and accordingly conforms to the Audit Committee principles within the CIPFA Position Statement for Audit Committees. • It focused entirely on matters of risk management, internal control and governance, giving specialist advice to the Council on the value of the audit process, on the integrity of financial reporting and on governance arrangements, and acted as a bridge between the Council and other stakeholders. It did this through material it received from Internal Audit, External Audit, other Audit bodies, and assurances from Management relevant to Audit Cycle of reporting. • The Audit Committee has reflected on its performance during the year, and has agreed areas of improvement to enable enhanced effectiveness to fulfil its scrutiny and challenge role. Derek Milligan Chair of Audit Committee 30 September 2024 Page 129 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Good Practice at 10 September 2024 1 Audit committee purpose and governance Yes/Partly /No Comments Does the authority have a dedicated audit committee? The Council’s Scheme of Administration approved in May 2022 lists the composition of the Council and its various Committees, including the Audit Committee. Does the audit committee report directly to full council? Has the committee maintained its advisory role by not taking on any decision-making powers? All Minutes of Audit Committee are circulated to full Council for noting and approval of any of their recommendations. An annual report is submitted by the Chair of the Audit Committee to full Council. Yes the Committee has no direct decision making powers. Do the terms of reference clearly set out the purpose of the committee in accordance with CIPFA’s 2022 Position Statement? Terms of Reference of the Audit Committee are periodically reviewed against CIPFA’s best practice by the Chief Internal Auditor. Do all those charged with governance and in leadership roles have a good understanding of the role and purpose of the committee? The role and purpose of the Audit Committee is set out in the Council’s Scheme of Administration including what it can do, the arrangements for meetings, required quorums etc. References to the role of the Audit Committee are made and draft agendas and reports are presented to the Corporate Management Team by the Chief Internal Auditor in advance of each Audit Committee meeting. Does the audit committee escalate issues and concerns promptly to those in governance and leadership roles? The Audit Committee carries out the role set out in the Terms of Reference contributing to the Council’s governance framework which is set out in the Local Code of Corporate Governance approved by Council in March 2021. All Minutes of the Audit Committee are circulated to full Council for noting and approval of any recommendations. Does the governing body hold the audit committee to account for its performance at least annually? The Audit Committee annually reviews its terms of reference as part of it carrying out a self-assessment of performance using best practice checklists. An annual report is submitted by the Chair of the Audit Committee to full Council. It sets out the activities to enable stakeholders to understand how the Audit Committee has discharged its duties and identifies areas of improvement to fulfil its remit. MLC continues to adopt this best practice. Yes Yes Yes Yes Yes Yes Yes Page 131 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Good Practice at 10 September 2024 2 Functions of the committee Yes/Partly /No Comments Does the committee publish an annual report in accordance with the 2022 guidance, including: compliance with the CIPFA Position Statement 2022 results of the annual evaluation, development work undertaken and planned improvements how it has fulfilled its terms of reference and the key issues escalated in the year? Do the committee’s terms of reference explicitly address all the core areas identified in CIPFA’s Position Statement? See Appendix 1 evaluation against the statement does not have access to independent members despite recruitment campaign. See Appendix 1 evaluation of previous issues. • Governance arrangements Functions in Terms of Reference Nos. 1, 3 & 4 • Assurance framework Assurance Framework function in Terms of Reference No. 6 and explicit references to these service delivery models in Nos. 3, 6 & 7 within the revised Terms of Reference approved by Council in August 2019. • Internal audit and Internal Control Arrangements including: o Financial management o Value for money o Ethics and standards o Counter fraud and corruption Functions in Terms of Reference Nos. 13-24 Function in Terms of Reference No. 12 Treasury Management and explicit references to ethics in Functions 3 & 19 within the revised Terms of Reference approved by Council in August 2019. • External audit Functions in Terms of Reference Nos. 25-29 Functions of the committee (cont’d) Yes/Partly Comments Yes Yes Yes Yes Yes Yes Yes Page 132 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Good Practice at 10 September 2024 3 /No • Risk management arrangements Functions in Terms of Reference Nos. 6-8 • Annual Governance Statement Function in Terms of Reference No. 5 • Assurance framework Functions in Terms of Reference Nos. 9-11 Over the last year, has adequate consideration been given to all core areas? Reports have been received that cover all core areas at meetings of the Committee. . Over the last year, has the committee only considered agenda items that align with its core functions or selected wider functions, as set out in the 2022 guidance? The Audit Committee has only considered items that align with its core functions. Has the committee met privately with the external auditors and head of internal audit in the last year? Due to the change of both Chief Internal Auditor and external audit the committee has not yet met privately, this will be arranged to be completed within 2024. Has the committee maintained its non-advisory role by not Has the Committee been established in accordance with the 2022 guidance as follows: Separation from the Executive A size that is not unwieldy and avoids the use of substitutes Inclusion of lay/co-opted independent members in accordance with legislation or CIPFA’s recommendation. Whilst during the year the committee membership included cabinet members this has been resolved with new memebership. Regular attendance by all members without substitutes evidences compliance. Despite a recruitment campaign lay members have not been successful in identifying and independent members for the Committee. Yes Yes Yes Yes Yes Yes No Yes No Page 133 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Good Practice at 10 September 2024 4 Membership and support Yes/Partly /No Comments Have all committee members been appointed or selected to ensure a committee membership that is knowledgeable and skilled. Elected Members on the Audit Committee are selected in accordance with the arrangements set out in the Council’s Scheme of Administration. Committee members bring a wide variety of skills, experience and knowledge. Continued further training and development requirements will remain under review. . Has an evaluation of knowledge, skills and the training needs of the chair and committee members been carried out within the last two years? Following the May 2022 local government elections and appointment to the Audit Committee the elected members’ induction programme was completed, having assessed the needs of the Council members. Have regular training and support arrangements been put in place covering the areas set out in the 2022 guidance? Induction training has been provided for all member which covers key areas of the 2022 guidance further review of regular training needs is required. Across the committee membership, is there a satisfactory level of knowledge, as set out in the 2022 guidance? The Committee members have satisfactory level of knowledge and experience in all key areas. Does the committee have good working relations with key people and organisations, including external audit, internal audit and the chief financial officer? The independent Chair meets with Chief Internal Auditor (CIA) in advance of each Audit Committee meeting and has the option to meet with External Auditors, Audit Scotland, in private. The Chair has a pre-meeting with senior management prior to each Audit Committee meeting to enable wider context of Council business. Is adequate secretariat and administrative support to the committee provided? A Democratic Services Officer is assigned to the Audit Committee. Has the committee obtained positive feedback on its performance from those interacting with the committee or relying on its work? Are meetings well chaired, ensuring key agenda items are addressed with a focus on improvement? The Audit Committee will continue to obtain feedback on its performance from senior management and the external auditor. As reflected in the Minutes of the Committee. Are meetings effective with a good level of discussion and engagement from all members? Has the Committee maintained a non-political approach to discussions throughout? As reflected in the Minutes of the Committee. As reflected in the Minutes of the Committee. Yes Yes Partly Yes Yes Yes Partly Yes Yes Yes Page 134 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Good Practice at 10 September 2024 5 As reflected in the Minutes of the Committee. Effectivenss of the committee Yes/Partly /No Comments Does the committee engage with a wide range of leaders and managers, including discussion of audit findings, risks and action plans with the responsible officers? The Chief Executive, Directors, and Section 95 Officer attend all Audit Committee meetings and respond to members’ questions as appropriate for the business being considered by the Committee to ensure action findings and action plans are acted upon. The Chief Officer Place presents quarterly updates to the Committee setting out the corporate risks and mitigations. Does the committee make recommendations for the improvement of governance, risk and control arrangements? Recommendations are made by the Committee to Council in accordance with the business considered by the Committee. An Action Tracker for Audit Committee is in place to monitor completion of their recommended actions. Do audit committee recommendations havetraction with those in leadership roles? Has the committee evaluated whether and how it is adding value to the organisation? The Chief Executive, Directors, and Section 95 Officer attend all Audit Committee meetings and respond to members’ questions as appropriate for the business being considered by the Committee to ensure action findings and action plans are acted upon. The Audit Committee carries out an annual self assessment of performance against the CIPFA good practice checklist and the effectiveness toolkit from the CIPFA guidance 2022 ‘audit committees’, the latter enabling evaluation of how effectively it fulfils its Audit functions. Does the committee have an action plan to improve any areas of weakness? As part of its annual self-assessment 2022/23 the Committee has recognised where it could improve in respect of its scrutiny and challenge role to fulfil its remit and to further add value. Improvements are set out within the Audit Committee Annual/End of Term Report 2022/23. Has this assessment been undertaken collaboratively with the audit committee members? This Assessment was carried out in response to a request to complete assessment questionnaires sent to all Committee Members in July/August 2024. Yes Yes Yes Yes Yes Yes Page 135 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Effectiveness 10 September 2024 1 Areas where the Audit Committee can add value by supporting improvement Examples of how the audit committee can add value and provide evidence of effectiveness Self-evaluation, examples, areas of strength and weakness Overall assessment 5-1 See key below 1. Promoting the principles of good governance and their application to decision making Supporting the development of a local code of governance. Providing robust review of the Annual Governance Statement (AGS) and the assurances underpinning it. Working with key members/governors to improve their understanding of the AGS and their contribution to it. Supporting reviews/audits of governance arrangements. Participating in self-assessments of governance arrangements. Working with partner audit committees to review governance arrangements in partnerships. Committee scrutinised Local Code of Corporate Governance, and recommended it for Council approval in March 2021, and scrutinised AGS within Annual Report and Accounts 2022/23 and 2023/24. Pre-Meet withthe Chair prior to each Committee meeting to provide wider context. Committee supports the role of audit in improving internal control and governance. Committee considers national reports and self- assessment toolkits. Reliance on previous years’ informal liaison with other Audit Committees e.g. MIJB. 5 (2022/23- 5) 2. Contributing to the development of an effective control environment. Actively monitoring the implementation of recommendations from auditors. Encouraging ownership of the internal control framework by appropriate managers. Raising significant concerns over controls with appropriate senior managers. Committee received periodic progress reports from Auditors e.g. follow-up activity. Directors attended Committee meetings to discuss progress with Audit actions. Action Log used to monitor completion of Committee recommendations. 5 (2022/23- 5) 3. Supporting the establishment of arrangements for the governance of risk and for effective arrangements to manage risks. Reviewing risk management arrangements and their effectiveness, e.g. risk management benchmarking. Monitoring improvements. Holding risk owners to account for major/strategic risks. A revised Risk Management Policy and Strategy was approved by Council in August 2022. The Committee continues to receive quarterly reports from Chief Officer Place on strategic risks and mitigations, with Directors in attendance. A Internal Audit review of risk management recommended improvements to reporting on Service Risk registers. 4 (2022/23-4) Page 137 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Effectiveness 10 September 2024 2 Areas where the Audit Committee can add value by supporting improvement Examples of how the audit committee can add value and provide evidence of effectiveness Self-evaluation, examples, areas of strength and weakness Overall assessment 5-1 See key below 4. Advising on the adequacy of the assurance framework and considering whether assurance is deployed efficiently and effectively. Reviewing the adequacy of the leadership team’s assurance framework. Specifying the committee’s assurance needs, identifying gaps or overlaps in assurance. Seeking to streamline assurance gathering and reporting. Reviewing the effectiveness of assurance providers, e.g. internal audit, risk management, external audit. Annual Strategies and Plans and periodic progress Reports received from Auditors which outline Governance and Assurance Framework, in alignment with Audit Cycle. Regular assurance reports provided on internal control, governance & risk management. 4 (2022/23 - 4) 5. Supporting effective external audit, with a focus on high quality and timely audit work. Reviewing and supporting external audit arrangements with focus on independence and quality. Providing good engagement on external audit plans and reports. Supporting the implementation of audit recommendations. External Audit Annual Plans and reports are submitted to the Committee and supported to conclusion of recommendations. 4 (2022/23–4) 6. Supporting the quality of the internal audit activity, particularly by underpinning its organisational independence. Reviewing the audit charter and functional reporting arrangements. Assessing the effectiveness of internal audit arrangements, providing constructive challenge and supporting improvements. Actively supporting the quality assurance and improvement programme (QAIP) of internal audit. Committee considered and approved the Internal Audit Charter. Committee considered and approved the Internal Audit Strategy and Plan, and regular Internal Audit reports with recommendations. Committee received Internal Audit QAIP and PSIAS conformance within mid-term performance and annual assurance reports. 5 (2022/23-5) 7. Aiding the achievement of the authority’s goals and objectives through helping to ensure appropriate governance, risk, control and assurance arrangements Reviewing how the governance arrangements support the achievement of sustainable outcomes. Reviewing major projects and programmes to ensure that governance and assurance arrangements are in place. Reviewing the effectiveness of performance management arrangements. Auditors provided audit review on governance arrangements and financial sustainability. Reliance on other Committees fulfilling their remits (Business Transformation Steering Group; Performance, Review and Scrutiny); knowledge from members appointed on those 4 (2022/23-4) Page 138 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Effectiveness 10 September 2024 3 Areas where the Audit Committee can add value by supporting improvement Examples of how the audit committee can add value and provide evidence of effectiveness Self-evaluation, examples, areas of strength and weakness Overall assessment 5-1 See key below Committees used to evaluate their effectiveness. 8. Supporting the development of robust arrangements for ensuring value for money. Ensuring that assurance on value for money arrangements is included in the assurances received by the audit committee. Considering how performance in value for money is evaluated in Annual Governance Statement (AGS). Following up issues raised by external audit in their value-for-money work. Auditors provided assurance on value for money arrangements e.g. sustainability, and performance management. AGS sets out the Governance Framework including arrangements for best value. 4 (2022/23-4) 9. Helping the authority to implement the values of good governance, including effective arrangements for countering fraud and corruption risks. Reviewing arrangements against the standards set out in the Code of Practice on Managing the Risk of Fraud and Corruption (CIPFA, 2014). Reviewing fraud risks and the effectiveness of the organisation’s strategy to address those risks. Assessing the effectiveness of ethical governance arrangements for both staff and governors. Committee received Counter Fraud Annual Report associated with refreshed Counter Fraud Policy and Strategy approved in 2020. Committee has requested self-assessment of fraud risks and counter fraud controls associated with national reports, and received assurance reports from Integrity Group. 5 (2022/23-5) 10. Promoting effective public reporting to the authority’s stakeholders and local community and measures to improve transparency and accountability. Working with key members to improve their understanding of the AGS and their contribution to it. Improving how the authority discharges its responsibilities for public reporting; for example, better targeting at the audience, plain English. Reviewing whether decision making through partnership organisations remains transparent and publicly accessible and encourages greater transparency. Publishing an annual report from the committee. Committee scrutinised Annual Report and Accounts 2022/23 including the enhanced Management Commentary for stakeholders. Reliance on health and social care governance arrangements (Integration Joint Board; IJB Audit and Risk Committee). Audit Committee Annual Report presented to Council in public. 4 (2022/23-4) Page 139 of 182
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CIPFA ‘audit committees’ Practical Guidance for Local Authorities and Police 2022 Edition Midlothian Council Audit Committee – self-assessment of Effectiveness 10 September 2024 4 Assessment key 5 Clear evidence is available from a number of sources that the committee is actively supporting improvements across all aspects of this area. The improvements made are clearly identifiable. 4 Clear evidence from some sources that the committee is actively and effectively supporting improvement across some aspects of this area. 3 The committee has had mixed experience in supporting improvement in this area. There is some evidence that demonstrates their impact but there are also significant gaps. 2 There is some evidence that the committee has supported improvements, but the impact of this support is limited. 1 No evidence can be found that the audit committee has supported improvements in this area. Page 140 of 182
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Audit Committee 30 September 2024 Item 5.5 Risk Management Update – Strategic Risk Profile Quarter 1 2024/25 Report by Derek Oliver, Chief Officer Place Report for Information 1 Recommendations Audit Committee is recommended to: • Note the current risk landscape and organisational response to the most significant risks in Quarter 1 (Q1) 2024/25 (1st April to 30th June 2024). 2 Purpose of Report/Executive Summary The purpose of this report is to provide Audit Committee with: • An update on the risk responses Midlothian Council has implemented during Q1 2024/25 to respond to the current risk climate • Assurance that Midlothian Council took a proportionate and planned approach to prepare and respond to the current risk climate • The risk evaluation of current strategic risks and opportunities for the Council 18 September 2024 Report Contact: Derek Oliver, Chief Officer Place Derek.Oliver@midlothian.gov.uk Page 141 of 182
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2 3 Q1 Risk Management Overview 3.1 Midlothian Council has delivered a wide range of services to the people of Midlothian throughout Quarter 1 2024/25. 3.2 The Council continues to manage and review risks recorded within the Strategic Risk Profile. The work required to maintain the necessary corporate oversight over the broader strategic landscape continues through the Risk and Resilience Chief Officer group and Corporate Management Team (CMT). 3.3 Audit Committee should note that there were no new risks added from the previous Quarter however, as per the request from Audit Committee, the Strategic Opportunities section has been revised to include Strategic Projects. The Projects included have a Red category across their respective Risk Evaluation. Updates on actions taken are included in the full strategic risk profile (Appendix B). 3.4 Strategic Risk Profile (SRP) The SRP is split into three sections: • Strategic issues • Strategic risks • Opportunities 3.5 STRATEGIC ISSUES - SUMMARY Strategic issues Likelihood Impact Score Evaluation Q1 Q4 23/24 The Change Programme 5 5 25 Critical Critical Financial Sustainability 5 5 25 Critical Critical National Care Service 3 5 15 Medium Medium 3.6 The Change Programme The Change Programme remains evaluated at Critical. The financial challenges of the forecasted budget gap pose a significant challenge for benefits realisation. Council agreed to a Transformation Blueprint in June 2023 which is a 5-year transformation plan. 3.7 Financial Sustainability The scale of the financial challenge continues to be reported to the Business Transformation Steering Group and Council. 3.8 National Care Service The Bill has experienced significant delays, but it is now at Stage 2. Page 142 of 182
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3 3.9 STRATEGIC RISKS – SUMMARY Strategic Risks Likelihood Impact Score Evaluation Q1 24/25 Q4 23/24 Climate Change 5 5 25 Critical Critical Financial Sustainability in future years 5 5 25 Critical Critical The Long-Term Change Programme 5 5 25 Critical Critical Legal and Regulatory compliance 5 5 25 Critical Critical UK decision to leave the EU 4 5 20 High High Scottish Child Abuse Inquiry 4 4 16 High High Growing Council 4 4 16 High High Cost of Living Crisis 3 5 15 Medium Medium Asset Management 3 5 15 Medium Medium Cyber Security 3 5 15 Medium Medium Health and Safety 3 5 15 Medium Medium Care at Home 3 4 12 Medium Medium Employee performance 3 4 12 Medium Medium Emergency planning and business continuity 3 4 12 Medium Medium Governance and standards 2 4 8 Low Low Internal control environment 2 3 6 Low Low Corporate policies and strategies 2 3 6 Low Low 3.10 STRATEGIC RISKS – RATED CRITICAL/HIGH 3.11 Climate Change The Council has developed a final draft of a Climate Change Action Plan. This is the next stage of progressing with the Climate Change Strategy, approved by Council in August 2020. Councillors will be presented with a briefing on the Climate Action Plan in Q2 24/25 as committed to through the Transformation Blueprint. Page 143 of 182
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4 3.12 Financial Sustainability in future years The scale of the financial challenge continues to be reported to Business Transformation Steering Group and Council. 3.13 The Long-Term Change Programme The Change Programme remained at Critical throughout 22/23 and 23/24. The financial challenges of the underlying budget gap pose a significant challenge. Council agreed to a Transformation Blueprint in June 2023 which is a 5-year transformation plan. 3.14 Legal and Regulatory compliance Significant resourcing pressures have impacted on risk evaluation. Work is ongoing with the Scottish Information Commissioner and National Records of Scotland to develop and deliver improvement plans. 3.15 UK decision to leave the EU The rate of inflation is impacting on the cost-of-living crisis for Midlothian residents and posing significant risk to a number of Council Capital Programme work streams. This was reported to the Business Transformation Steering Group (BTSG) and also through progress reports on programmes to Council. A new Economic Strategy will be presented to Council. This risk evaluation remains High. 3.16 Scottish Child Abuse Inquiry (SCAI) The SCAI risk evaluation remains High as the Inquiry continues. 3.17 Growing Council The risk evaluation remains High in Q1 2024/25. This is in response to the current financial challenge as described above and the increased pressure the Council faces with growth. Some current examples of this include: • Inflationary impact on the delivery of the capital programme • Cost of living crisis • Pressure on the care sector as people are living longer and require more care provision • General population growth places additional demand on infrastructure such as GPs, schools, waste services etc. 3.18 Work is ongoing to review the Learning Estate Strategy and a reprioritisation of the Capital Programme. Page 144 of 182
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5 3.19 STRATEGIC OPPORTUNITIES 3.20 Capital Projects - Housing Projects impacted with 26% reduction in Affordable Housing Supply Programme grant to Midlothian and continued high build costs. Phase 5 housing programme has been reviewed to ensure affordability within the Housing Revenue Account, allowing for reduced levels of grant. Projects highlighted with specific Red Risk Evaluation(s) and detailed within the SRP are Newbyres, Gorebridge; Edmonstone Road, Shawfair and Newton Church Road, Danderhall. 3.21 Capital Projects – Transport, Net Zero & Infrastructure Cost of delivering enabling infrastructure projects has risen, resulting in significant funding gap emerging and impacting on progress of A701 Relief Road, Sustainable Transport Corridor and Straiton Junction Improvements, which are detailed within the SRP. 3.22 Capital Projects – Children, Young People & Partnerships Estates Programme: Primary Five specific projects identified within the SRP: 1. Mayfield/St Lukes PS New Build: Tender return from Stage 1 exceeds available budget. Programme delayed for project revision. 2. Kings Park PS Extension & Refurbishment: No available budget to undertake extension. Condition and suitability of school to be addressed. 3. Rosewell PS Extension: No available budget to undertake extension. Condition and suitability of school to be addressed. 4. Mauricewood PS Extension & Refurbishment: Rising roll and catchment review requires investment in school to address capacity and suitability. Limited budget available. Design team appointed to develop investment in school that aligns with budget available from Developer Contributions. 5. Bilston PS Extension: Rising roll and catchment review requires investment in school to address capacity and suitability. Limited budget available. Design team appointed to develop investment in school that aligns with budget available from Developer Contributions. 3.23 Capital Projects – Children, Young People & Partnerships Estates Programme: Secondary Three specific projects identified within the SRP: 1. Beeslack HS Replacement: Site acquisition being progressed, however dependent on planning being achieved (expected Nov 24). Contractor appointment delayed. Programme behind due to changes in scope / design. Page 145 of 182
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6 2. Shawfair All Through: Site acquisition complete. School location fixed with design team. Remediation programme being revised. Seeking to make efficiencies in remediation programme. 3. Penicuik HS New Build: LEIP target for delivery is Dec 2026, however programme for occupation is July 2027. Cost reports tracking higher and risks identified in refurbishment works. SFT advising if additional LEIP funding available. 3.24 Capital Projects – Regeneration Three specific projects identified within the SRP: 1. Vogrie Changing Places: contractor issues. 2. Destination Hillend: Alpine Coaster delivered with access and parking infrastructure. Project absorbed risk and contingency. Delays to delivery resulting from issues with access / water mains. Main Building tender return exceeded budget. Next Phase to be recast. Interim works on water supply and drainage required. 3. Hopefield Industrial Estate: Updated financial model required. 3.25 City Region Deal Edinburgh and South East Scotland City Region Deal - bid for funding to Scottish and UK Governments to accelerate economic growth through investment in infrastructure/ housing/ skills and innovation was agreed by Council in June 2018. Projects continue to be progressed with realisation of regional enhancements and connectivity. 4 Report Implications (Resource, Digital and Risk) 4.1 Resource There are no direct resource implications indicated in this report, although individual risks have associated resource implications. 4.2 Digital None 4.3 Risk The risks reported in this report are understood with the Council able to demonstrate the current risk controls and actions being taken in response to these. The report provides an overview of the significant risks faced by the Council during Quarter 1 2024/25 and should act to provide assurance that Midlothian Council took a proportionate and planned approach to prepare and respond to each of these risks. 4.4 Ensuring Equalities (if required a separate IIA must be completed) There are no direct equalities issues arising from this report. Page 146 of 182
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7 4.4 Additional Report Implications (See Appendix A) See Appendix A Appendices Appendix A – Additional Report Implications Appendix B – Strategic Risk Profile (Quarter 1 2024/25) Page 147 of 182
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8 APPENDIX A – Report Implications A.1 Key Priorities within the Single Midlothian Plan This report provides an overview of the Strategic Risk Profile of Midlothian Council at a defined point in time. The issues, risks and opportunities affecting or supporting delivery of the council priorities are set out within the Strategic Risk Profile. A.2 Key Drivers for Change Key drivers addressed in this report: Holistic Working Hub and Spoke Modern Sustainable Transformational Preventative Asset-based Continuous Improvement One size fits one None of the above A.3 Key Delivery Streams Key delivery streams addressed in this report: One Council Working with you, for you Preventative and Sustainable Efficient and Modern Innovative and Ambitious None of the above A.4 Delivering Best Value The Council’s commitment to best value and securing continuous improvement can best be delivered when decisions are made against a backdrop of understanding the risks and opportunities before an organisation. This report seeks to provide assurance that the current risk environment is understood and that Midlothian Council is taking appropriate action in response to those identified risks. A.5 Involving Communities and Other Stakeholders This Strategic Risk Profile report has been compiled with input from a range of internal key stakeholders. Page 148 of 182
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9 A.6 Impact on Performance and Outcomes This report seeks to provide an overview of the challenging risk environment within which the Council is operating at this time. Being in a risk aware position helps to inform current and future decision making, with the intention of enhancing decision making and the associated performance and outcomes which flow from well informed decision making. A.7 Adopting a Preventative Approach The Risk Management approach being taken by the Council is founded on a preventative approach to managing risks, where appropriate and more generally to decision making with far greater risk awareness. A.8 Supporting Sustainable Development Senior Managers must ensure the sustainability of the Council, which entails identifying, understanding and managing Strategic and Service level risks and opportunities. Page 149 of 182
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1 STRATEGIC RISK PROFILE, Q1 April – June 2024 SRP STRATEGIC RISK PROFILE SRP This risk register captures the main strategic issues, risks and opportunities that are corporate in nature. It identifies the nature of the risks, measures required to control the risks and their evaluation. It also details what further actions are required to reduce the likelihood and impacts of those risks to more acceptable and manageable levels with timescales. Strategic Issues SRP.IR.02 The Change Programme Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.IR. 02 Risk cause The pace of transformation strands of activity, reporting to the Business Transformation Board, does not secure service transformation, delivery of outcomes or benefit realisation. Risk event Delayed progress or non-achievement of outcomes and benefits. Risk effect Slow or delayed financial benefits arising from service redesign, requiring the adoption of recovery plans or requiring short term service reductions which impact on the Council’s ability to deliver against its priorities. . Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 1. Transformation Blueprint agreed at Council June 2023 which is a 5- year transformation plan. Revised governance for transformation agreed and revised Terms of Reference in place for the Business Transformation Board to oversee progress on change programme. 2. Regular reporting to Council setting out scale of financial challenge ahead with recurring expenditure for current service delivery projected to exceed recurring income. 3. Cross Party Business Transformation Steering Group are given updates on the progress of the Transformation programme. 4. Financial monitoring reports and work of the Financial Management Corporate Management Team evidence continued financial sustainability, in so far as services are delivered within the overall budget in year. 5 5 Page 151 of 182
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2 Related Action Code Related Action Related action latest note Managed By Due Date Status SPR.RA -02.08 Transformation Blueprint 2023-28 delivery Q1 24/25: As Q4 23/24. Q4 23/24: Work on sprints continues with some reporting to BTSG in the run up to June Council with the majority of others scheduled for August. BTB is now meeting fortnightly to encourage and closely monitor progress. To support monitoring of progress a dashboard has been developed and this is shared with CMT and BTSG as a standing item. Q3 23/24: Regular review and updates to the Business Transformation Board which meets monthly. Transformation Manager in post and sprints initiated. Chief *Executive; Chief Officer *Place; Chief Officer Corporate Solutions; Chief Finance Officer; 30-Jun-2028 20% SRP.RA .02.03 Develop Medium Term Financial Strategy with greater oversight, clearer responsibility and accountability. Q1 24/25: An update on the MTFS was presented to Council in June 2024. This identifies immediate actions required, in addition to those in the Transformation Blueprint, to bridge the gap between recurring expenditure and recurring income and to allow the setting of a balanced budget for 2025/26. Q4 23/24: An update on the MTFS with refreshed projections and a clear plan to address financial sustainability will be presented to Council in June 2024. Q3 23/24: As Q1. Preparations for MTFS at February Council. Chief *Executive; Chief Finance Officer; 30-June-2024 100% SRP.IR.07 Financial Sustainability Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.IR. 07 Risk cause Scottish Government Grant settlements fall short of the resources needed to sustain core services. Core funding falling short of inflation pressures, pay awards and demographic pressures arising from an Increasing ageing population of over 75’s. Increasing population of 0-15 age group and at a time when there are rising Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive 1. There is an approved Capital Strategy and Reserves Strategy in place. The Capital Strategy is being updated in the context of ongoing and significant infrastructure pressures. 2. There is an approved budget for 2024/25. Services are delivered within the totality of that budget. 3. Enhanced monitoring arrangements have been agreed for service areas that are regularly showing overspends. 4. Directorates have budget boards in place to monitor and agree actions for those items which are identified as needing specific attention or present a risk to the financial position of services. 5 5 Page 152 of 182
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3 customer expectations. Risk event Transformation activity and the flexibility available to Councils as part of the grant settlement does not address future years projected budget gaps. Risk effect Inadequate government funding makes securing balanced budgets challenging. This in turn erodes the Council’s ability to deliver services to the community and potentially means that resources available fall short of those the Council assess as required to meet its statutory obligations. Whilst transformation activity can help reshape services and ensure best value in the delivery of services it is not a solution to continued erosion of core funding. Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 5. Strategic Boards in place and BTB focus and attention on driving transformation to support future year’s financial sustainability. 6. Working through COSLA to influence government spending decisions to influence Scottish Government’s budget allocation to Councils. 7. Capital Plan and Asset Management Board will scrutinise and challenge slippage on capital programmes recognising that slippage can have an adverse impact on financial sustainability and also the delivery on assets required to support capital growth. 8. Chief Executive continues to emphasise the need for effective financial control and underlined the benefit to the organisation of such an approach. 9. Scottish Governments May 2022 Resource Spending Review provided planning parameters for term of parliament, albeit these are challenging and present a real terms reduction in grant funding of circa 7% over the period. 10. Report to Council February 2024 sets out scale of financial challenge ahead with recurring expenditure for current service delivery projected to exceed recurring income. Updated MTFS projections presented in June 2024. 11. Cross Party Business Transformation Steering Group engaged in consideration of measures to secure balanced budgets alongside the development of a Strategic Plan to support decisions about what services, beyond those which are statutory can be provided. Related Action Code Related Action Related action latest note Managed By Due Date Status SPR.RA -02.09 Transformation Blueprint 2023 to 2028 Q1 24/25: As Q4 23/24. Q4 23/24: Work on sprints continues with some reporting to BTSG in the run up to June Council with the majority of others scheduled for August. BTB is now meeting fortnightly to encourage and closely monitor progress. To support monitoring of progress a dashboard has been developed and this is shared with CMT and BTSG as a standing item. Q3 23/24: Regular review and updates to the Business Transformation Board which meets monthly. Transformation Manager in post and sprints initiated. Chief *Executive; Chief Finance Officer; 30-Jun-2024 20% SRP.RA .02.03 Develop Medium Term Financial Strategy with greater oversight, clearer responsibility and accountability. Q1 24/25: An update on the MTFS was presented to Council in June 2024. This identifies immediate actions required, in addition to those in the Transformation Blueprint, to bridge the gap between recurring expenditure and recurring income and to allow the setting of a balanced budget for 2025/26. Q4 23/24: An update on the MTFS with refreshed projections and a clear plan Chief *Executive; Chief Finance Officer; 30-June-2024 100% Page 153 of 182
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4 to address financial sustainability will be presented to Council in June 2024. Q3 23/24: As Q1. Preparations for MTFS at February Council. SRP.RA -02.10 Capital Plan Prioritisation Q1 24/25: Work continues on Capital Plan prioritisation Q4 23/24: Work continues on Capital Plan prioritisation Q3 23/24: Work continues on Capital Plan prioritisation Chief Finance Officer; Executive Director – Place; Executive Director - Education 31-Oct-2024 0% SRP.IR.11 National Care Service Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.IR. 11 Risk cause In August 2022 the Scottish Government launched a 12-week consultation on the way in which social care is delivered in Scotland. The consultation followed recommendations made in the Independent Review of Adult Social care. The independent analysis of responses was published in February 2022. On 20 June 2022 the Scottish Parliament published the National Care Service (NCS) Bill which will provide the foundation for the NCS. Risk event A Bill passes through various Parliamentary stages. The Bill is currently in Stage 1 of the process. The most significant part of the legislation which poses the most risk is the intention to transfer social care responsibility from local authorities to a new, national service. Risk effect The details of the logistics of any transfer are not yet provided within the Bill. It is not clear the extent to which powers will be removed from local authorities or what the Head of *Adult and Social Care; Chief *Executive; Director *Health and Social Care; Executive Director *Place; Chief Officer Young People and Partnerships 1. The Bill is at stage 2 with no clear decisions as to whether or not children and justice are to be included within the NCS. The ongoing discussions are around allowing local areas to determine how they structure their services continues. 2. Ongoing briefings with elected members 3. Continued dialogue and engagement with Scottish Government and IJB/H&SCP/Children’s Services 3 5 Page 154 of 182
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5 provision or delivery of services will or will not be. At this stage, the risk effect is anticipated to be significant financial impact to local authorities and IJBs, as well as the potential for impacts on staffing, transfer of property and facilities and the reshaping of the delivery of care. It should be noted that the initial impact on the Council is staff time to contribute to the ongoing discussions and understanding of the impact of the Bill. Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .11.1 Officer Working Group Q4 23/24: The Bill is at Stage 2. Q3 23/24: Further information now expected late March 2024. Chief *Executive; 31-Dec-2024 100% Strategic Risks SRP.RR.01 Financial Sustainability in future years Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.01 Risk cause: Scottish Government Grant settlements fall short of the resources needed to sustain core services. Core funding falling short of inflation pressures, pay awards and demographic pressures arising from an Increasing ageing population of over 75’s. Increasing population of 0-15 age group and at a time when there are rising customer expectations. Policy decisions by UK & Scottish Governments which are not fully funded. Changes to the responsibilities of Local Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate 1. Development of Strategic Plan, Transformation Blueprint and MTFS projections which come together to provide a framework to effect change and to move the Council to a position of financial sustainability. 2. Maintaining a level of reserves to deal with unforeseen or one-off cost pressures. 3. Capital and Reserves Strategies in place. The Capital Strategy is being updated in the context of ongoing and significant infrastructure pressures. 4. Working through COSLA to influence government spending decisions to influence Scottish Government’s budget allocation to Councils. 5. Implement a lobbying strategy with government to recognise the unique position Midlothian Council is in. 6. Best Value Audit report actions. 7. Strategic Boards in place to drive transformation in line with the 5 5 Page 155 of 182
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6 Government and the funding implication that arise from that, particularly in respect of the creation of a National Care Service. Future year pay award settlements. Risk event: Real terms reduction in core grant settlements. Policies decisions at Government level not fully funded to Council's. Implementation of a National Care Service and impact on grant settlements. Securing the extent of change required in order to deliver financial sustainability and a change program that recognises the size of the challenge. Cost pressures exceeding budget estimates. Risk to not achieving financial sustainability is a failure to deliver cost reductions / service change embedded in the blueprint and also supplementing the blueprint. Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships Transformation Blueprint. 8. Dedicating capacity to understand impact of NCS Bill, but limited details mean this is challenging and many unanswered questions (refer to specific risk on NCS for further detail) Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .02.03 Develop Medium Term Financial Strategy with greater oversight, clearer responsibility and accountability. Q1 24/25: An update on the MTFS was presented to Council in June 2024. This identifies immediate actions required, in addition to those in the Transformation Blueprint, to bridge the gap between recurring expenditure and recurring income and to allow the setting of a balanced budget for 2025/26. Q4 23/24: An update on the MTFS with refreshed projections and a clear plan to address financial sustainability will be presented to Council in June 2024. Q3 23/24: As Q1. Preparations for MTFS at February Council. Chief *Executive; Chief Finance Officer; 30-June-2024 100% SRP.RA .02.04 Transformation Blueprint 2023 to 2028 Q1 24/25: As Q4 23/24. Q4 23/24: Work on sprints continues with some reporting to BTSG in the run up to June Council with the majority of others scheduled for August. BTB is now meeting fortnightly to encourage and closely monitor progress. To support monitoring of progress a dashboard has been developed and this is shared with CMT and BTSG as a standing item. Chief *Executive; Chief Finance Officer; 30-Jun-2028 20% Page 156 of 182
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7 Q3 23/24: Regular review and updates to the Business Transformation Board which meets monthly. Transformation Manager in post and sprints initiated. SRP.RA .02.06 Capital Plan prioritisation Q1 24/25: Work continues on Capital Plan prioritisation Q4 23/24: Work continues on Capital Plan prioritisation. Q3 23/24: Work continues on Capital Plan prioritisation. Head of *Development; Executive Director *Place; Chief Finance Officer; 31-Oct-2024 0% SRP.RR.02 The Long-Term Change Programme Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.02 Risk cause: A MTFS that does not address the projected budget shortfall or contextual factors relating to the Midlothian area. Reduced resources Leadership fit for the future. Lack of clarity or clear compelling vision for the future Delay or shortfall in securing savings Lack of or not securing transformational change in service provision Risk event: Delayed progress in applying various strands of the Change Programme including Delivering Excellence Framework Slow benefits realisation and budget savings Cuts in service provision rather than service transformation Risk effect: Objectives of change not actually met or progress too slow. Adverse impact on services Slow or delayed proposals/savings arising from service redesign. Potentially further eroding reserves or requiring short term service reductions which impact on Council's Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 1. Development of Strategic Plan, Transformation Blueprint and MTFS projections which come together to provide a framework to effect change and to move the Council to a position of financial sustainability. 2. Leadership from all Elected Members, Executive Team and Senior Leadership Group. 3. Appropriate governance in place across the BTB Strategic Boards 4. Resilience planning. 5. Capacity to deliver change. 6. Dedicating capacity to understand impact of NCS Bill, but limited details mean this is challenging and many unanswered questions (refer to specific risk for NCS Billl). 7. High level priority is given to blueprint work. 5 5 Page 157 of 182
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8 ability to deliver against its priorities. Staff morale negatively affected, Government step-in short term savings instead of transformation Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .02.03 Develop Medium Term Financial Strategy with greater oversight, clearer responsibility and accountability. Q1 24/25: An update on the MTFS was presented to Council in June 2024. This identifies immediate actions required, in addition to those in the Transformation Blueprint, to bridge the gap between recurring expenditure and recurring income and to allow the setting of a balanced budget for 2025/26. Q4 23/24: An update on the MTFS with refreshed projections and a clear plan to address financial sustainability will be presented to Council in June 2024. Q3 23/24: As Q1. Preparations for MTFS at February Council. Chief *Executive; Chief Finance Officer; 30-June-2024 100% SRP.RA .02.04 Transformation Blueprint 2023 to 2028 Q1 24/25: As Q4 23/24 Q4 23/24: Work on sprints continues with some reporting to BTSG in the run up to June Council with the majority of others scheduled for August. BTB is now meeting fortnightly to encourage and closely monitor progress. To support monitoring of progress a dashboard has been developed and this is shared with CMT and BTSG as a standing item. Q3 23/24: Regular review and updates to the Business Transformation Board which meets monthly. Transformation Manager in post and sprints initiated. Chief *Executive; Chief Finance Officer; 30-Jun-2028 20% SRP.RR.03 Legal and Regulatory Compliance Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.03 Risk cause Current or new legislation applying to Midlothian Council. Lack of capacity to resource statutory obligations around GDPR, data protection, records management, information requests and statutory regulatory functions. Head of *Adult and Social Care; Legal *and Governance Manager; Chief Operating Officer *Education; Chief *Executive; 1. Executive Directors, Chief Officer(s) and Head(s) of Service responsible for identifying applicable legislation and propose Council or Service responses to CMT and Cabinet/Council as required. 2. Annual Assurance Statement. 3. Internal Audit testing of internal controls as part of risk-based audit plan. 4. External Audit. 5. Range of external inspection. 5 5 Page 158 of 182
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9 Risk event Council and or Services not identifying all applicable legislation impacting Council activities and Service requirements. Risk effect Council failing to meet its statutory obligations resulting in a potential negative impact for service users or employees. Reputational impact of not meeting statutory obligations. Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 6. BTSG oversight of new legislation 7. Central repository of applicable legislation. Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .03.02 Rights of the Child Bill Q4 23/24: Q4 Council wide group established and developing a plan that ensures we are all aware and adhering to UNCRC. Q3 23/24: Bill now adopted. Policy to be presented to Council May/June 2024. Chief *Social Work Officer; 31-Dec-2024 0% SRP.RA .03.03 National Care Service Q4 23/24: Q4 National Care Service is at stage 2 and we await decisions around what next. Q3 23/24: National Care Service Bill has been delayed for any further decision until the 1st March 2024. Chief *Executive; 31-Dec-2024 0% SRP.RA .03.05 Review of Standing Orders, Scheme of Administration and Scheme of Delegation Q4 23/24: Workplan presented and agreed by SOWG in April 2024. Some changes to SOs and Scheme of Administration presented and approved by Council in May 2024 (this is technically Q1 2024/25 update). Legal *and Governance Manager; Executive Director *Place; Chief Officer Corporate Solutions; 31-Dec-2024 40% SRP.RA .03.07 Review of policy and creation of a policy register Q4 23/24: work to develop policy register ongoing. Q3 23/24: Corporate Solutions has initiated a review of policies in the Council, aligned to legislation changes and statutory requirements for the Local Authority. Work is ongoing to gather information across the Council to inform an action plan and a refreshed policy register. It is estimated that this work will take until end 2024 to be completed. Chief Officer Corporate Solutions 31-Dec-2024 10% NEW Compliance with statutory duties Q1 24/25: Records Management Officer in post and reviewing the Records Management Plan, Corporate Retention Policy and Schedule and supporting the Chief Officer Corporate 31-Dec-2024 10% Page 159 of 182
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10 development of retention framework for M365 rollout. Q4 23/24: Work is ongoing with the Scottish Information Commissioner and National Records of Scotland to develop and deliver improvement plans. Ongoing recruitment for Records Manager. Rationale report for resourcing in development. Significant resourcing pressures contribute to the increase in scoring for Q4. Solutions, Legal and Governance Manager SRP.RR.04 Employee performance Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.04 Risk cause Employees not suitably trained/developed for the roles required of them. Limited availability of qualified practitioners in certain sectors. Change program not informed by all key stakeholders. Ageing work force. Employees unclear on expected behaviours. Employees constrained to innovate as a result of management practice. Employee productivity rate below the required level because of ineffective use of the People Policies particularly Maximising Attendance. Salaries in some functional areas lower compared to other LA’s resulting in recruitment issues particularly with trying to recruit experienced staff. Risk event Employees not engaged/consulted as part of organisational transformation. Experienced employees leaving the organisation. Inability to recruit suitably qualified / trained staff to fill vacancies negatively impacting on remaining workforce. Unacceptable behaviours demonstrated by Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; HR Strategic Lead; Chief Officer Young People and Partnerships Over-riding risk control measure = Focus on having the right people, here, healthy, performing, behaving and well led via effective utilisation of the workforce strategy and accompanying action plan. Attendance / Wellbeing 1. Continuing implementation of the Wellness@Midlothian agenda. 2. Creation of an Employee Health and Wellbeing Strategy and supporting policy. 3. Maintaining the Healthy Working Lives Gold Award. 4. Proactive use of Occupational Health, Midlothian Physiotherapy, Employee Assistance Programme and the Workplace Chaplaincy Service. 5. Change of EAP supplier to ensure provision of best possible service. 6. Development of progressive People Policies. 7. Roll-out of mental health training for staff and managers. Performance 1. Service-level workforce plans. 2. Structured, robust, well established ‘Making Performance Matter’ Framework where expected standards of behaviour and Council values are re-enforced. 3. Continued re-enforcement of all People Policies involving various communication methods. 4. Development of a suite of management information to ensure Service Managers are informed e.g., turnover, absence levels/reasons etc. Organisational Change 1. Policy for Organisational Change includes strong emphasis on early engagement of employees. 2. Redeployment Procedure to ensure maximum chance of successful redeployment. 3 4 Page 160 of 182
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11 employees. Stated organisational culture not consistently reinforced by managers. Poor employee performance will stifle transformational change. Risk effect Difficulties recruiting the right staff. Challenges retaining quality staff. Low skill levels. Low morale, especially during change. High absence rates, loss of experience in service areas. ‘A Great Place to Grow’ our values including respect, collaboration, pride and ownership not realised, potentially resulting in missing the opportunity to capitalise on the abilities, experience and ideas of team members. Poor employee performance will Exacerbate the financial challenge. Conduct 1. Resolution Policy encourages early intervention of workplace issues. 2. Professional standards and values build into the induction process and management development programme. Communication 1. A range of initiatives to keep staff informed of change (Chief Executive’s weekly email, Connect, All staff emails, tailored team briefings etc. Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .02.04 Development and Delivery of the Council’s Workforce Strategy 2024-29 including analysis of future workforce requirements, gap analysis and gap closing strategies, and performance measures and target setting. Q1 24/25: Workforce Strategy in development and expected to be presented to December Council with Action Plan for approval. Audit Scotland external audit on workforce and digital to be presented to Audit Committee September 2024. Q4 23/24: Ongoing work nationally to review workforce planning which Midlothian is contributing to. Best Value focus this year is on workforce planning – awaiting outcome of external audit to identify improvement plan for 24/25. Q3 23/24: Service plans were presented to June 2023 council. Supporting workforce plans are due to be fully in place for June 2024. The workforce planning process, guidance and documentation has been developed and approved for use by managers across the council. The HR team is available to support managers who wish help and guidance in the development of these workforce plans. Chief Officer Corporate Solutions 31 Dec 2024 25% Page 161 of 182
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12 SRP.RR.07 Care at Home Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.07 Risk cause Internal and External providers of Care at Home services unable to meet service and quality requirements as a result of a lack of capacity. Risk event Capacity of Community Support outstripped by demand. Risk effect There is a risk that patients will have their discharge delayed because there is insufficient community supports to enable timely discharge leading to deterioration in their health, beds being blocked and elective operations potentially being cancelled. Head of *Adult and Social Care; Director *Health and Social Care 1. Care at Home winter assurance plan and business continuity plan complete 2. Development of Care at Home Service Improvement action plan near completion 3. External commissioning complete and ongoing contract monitoring in place 4. External provider audits complete 5. Re-established Multi-Agency Quality in Care at Home quarterly review meetings jointly with East Lothian 6. Weekly provider meetings in place 7. Additional locum team members and contracts with agency staff in place 8. Daily discharge meeting with Multidisciplinary and Multi-agency team planning to plan and coordinate discharge to ensure care at hone support in place 3 4 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .07.01 Independent review of adult and social care Q1 23/24: Pause remains in place. Head of *Adult and Social Care; Chief *Executive; 31-Jan-2024 100% SRP.RR.08 Asset Management – buildings, vehicles, roads and Digital assets/networks Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.08 Risk cause Many of the assets the Council own by their nature are in a position of ongoing deterioration through their normal use, Head of *Adult and Social Care; Head of *Development; Chief Operating 1. There is provision in place within the capital plan for investment in the asset base. 2. Asset register 3. Condition Survey 4. Understanding of future asset needs 3 5 Page 162 of 182
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13 e.g., roads - normal wear and tear, streetlights and vehicles & buildings used to deliver services. Risk event Many assets will deteriorate under normal conditions although buildings, roads and streetlights as an example can be damaged during more extreme weather events or as a result of a lack of maintenance. Risk effect In the case of Roads Services there is a real risk of increased potholes and insurance claims, reduced skid resistance leading to higher accident potential and building up of higher costs in the future. In respect of vehicles, increased breakdowns, service failures, greater maintenance inevitable, higher short-term hire costs. In terms of property, health and safety issues arise, failure to meet current standards and higher running costs. There is also the risk of two-tier accommodation, some high quality, some low. Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 5. Asset Strategy: . Roads . Land . Fleet . Digital Service Network . Digital Service hardware 6. Capital programme - investment in estate. 7. Ongoing monitoring of properties by: Maintenance Surveyors, Facilities Management and Property Users. 8. Established Capital Plan and Asset Management Board and dedicated Asset Management Board 9. Establishment of 7 thematic Estate Safety and Management Groups chaired by Chief Officer Place 10. Building Accessibility Strategy Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .08.02 Plan for appropriate investment in capital works and remedial maintenance over the lifespan of each property asset. Q1 24/25: Condition Surveys continue, with Learning Estate (excl PPP) expected to be concluded by end December 2024 to inform capital investment proposal. Q4 23/24: Backlog maintenance repairs being undertaken across the estate on a prioritised basis. Q3 23/24: Surveyors have now completed the first phase of surveys that were due to have been completed by March 2024. A further phase will begin in April and run though until April 2025. Chief Officer *Place; 30-Apr-2025 33% SRP.RA .08.05 Learning Estate Strategy Q4 23/24: All Priority 1 and 2 projects are progressing. In terms of all of the capacity breaches that were detailed in Priority 2 of the LES, investment was made to provide a solution. Head of *Development; 30-Apr-2025 50% Page 163 of 182
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14 Q3 23/24: All Priority 1 projects as detailed in the Learning Estate Strategy have been approved by Council in June 2023, this includes Beeslack HS replacement and Penicuik HS refurbishment & extension. A number of Projects in the priority 2 tranche have been progressed to ensure schools do not experience capacity breaches. SRP.RA .08.06 Asset Management systems Q4 23/24: As Q3. Q3 23/24: Identified for implementation through Transformation Blueprint and The Change Programme. Chief Officer *Place; 31-Mar-2025 0% SRP.RR.09 Emergency Planning and Business Continuity Management Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.09 Risk cause The Council not preparing or timeously reviewing Emergency Plans and testing arrangements to respond to Civil Contingencies Incidents Risk event There are a wide range of potential events the Council may be expected to respond to e.g., Severe weather incident, Pandemic, Utility disruption etc. Risk effect Censure through non-compliance with the Civil Contingencies Act Not adequately recovering from the loss of major accommodation (e.g., secondary school, main offices), computer systems and staff Not able to respond to a major emergency in the community Fatal Accident Inquiries Head of *Adult and Social Care; Head of *Development; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; David Robertson; Chief Officer Young People and Partnerships 1. Civil Contingencies Risk Register used to highlight key risks and record response, - Council’s plans developed and maintained in response to identified risks, - Risk and Resilience Group support development, peer review and roll out of plans. 2. Establishment based incident response plans in place and maintained locally. 3. Emergency response plan setting out general approach to respond to a major emergency in-line with key partner organisations. 4. As part of the Council’s Emergency response the importance of recording decisions made and information available at the time is highlighted as this would be scrutinised in the event of an FAI. 05 – Care for People Group: Afghan, Ukrainian and UASC support programmes 3 4 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA Development of Emergency Plans Chief Officer 31-Dec-2024 75% Page 164 of 182
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15 .09.02 Q1 24/25: Exercise (simulated cyber attack) took place at the Leadership Forum June 2024 with the session facilitated by Scottish Government and LRP Colleagues. The session was designed to remind services managers of the importance of having , maintaining and exercising their Business Continuity Planning arrangements. Plans/plan updates include: • Midlothian Council generic Emergency Plan. This document outlines internal emergency management arrangements and multi-agency partnership relationships. • Operation UNICORN (and associated arrangements). Scottish Government have advised that national planning arrangements are underway. Meantime, we have the basics in place, based on previous experience. • Corporate Business Continuity (BC) Plan. An update to the Corporate Business Continuity Policy was provided to Corporate Management Team members in Q4 23/24. However, learning from a Cyber Security event facilitated by Scottish Government in June 2024 and the experiences of other organisations will now be incorporated into an expanded document, which will also link in with the work being done by Digital Services on the technical response to a cyber attack. • . Multi-agency Exercises, Training, Presentations, Work streams: Team Members also participated in the following where appropriate to their areas of work, invitations were extended to colleagues in other services and partners: • Planning for and participation in a Torness related exercise in June 2024. • Lothian and Borders Local Resilience Partnership non-routine inputs including Met Office Extreme Heat Awareness Q4 23/24: Work on flooding across the county and its risks has commenced, with a report to Council scheduled for post-recess. CMT desktop exercise undertaken. Q3 23/24: A service review of the Health, Safety & Resilience team has commenced. *Place; Senior Manager Protective Services; David Robertson SRP.RA .09.03 Business Continuity Software System Q1 24/25: The Health, Safety & Resilience Service review is progressing and has identified staffing shortages to meet obligations. Q4 23/24: Report in early draft, to be completed once Health, Safety & Resilience service review completed (SRPO.RA.09.02). BCPs in the event of Chief Officer *Place; Senior Manager Protective Services; David Robertson 31-Dec-2024 25% Page 165 of 182
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16 power outage to be incorporated. Q3 23/24: System review/upgrade has been considered and it is planned to present a report to CMT in Q4. SRP.RR.10 Governance and Standards in Public Life Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.10 Risk cause Code of conduct for Members and employees’ actions falling short of International Standards. Risk event Failure in openness, accountability, clarity. Risk effect Service, partnerships and project outcomes not achieved. Non- compliance with conduct standards and reduction in standards in public life. Legal *and Governance Manager; Chief *Executive; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions 01 Annual Assurance Statement. 02 Standing Orders 03 Scheme of Administration 04 Scheme of Delegation 05 Elected Member Code of Conduct 06 Induction programme for new members and ongoing learning and development programme 07 Employee Code of Conduct 2 4 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .03.05 Review of Standing Orders, Scheme of Administration and Scheme of Delegation Q1 24/25: Workplan presented and agreed by SOWG in April 2024. Some changes to SOs and Scheme of Administration presented and approved by Council in May 2024. Q3 23/24: Workplan being developed by officer working group and will be presented to SOWG in March 2024 for approval. Legal *and Governance Manager; Chief Officer Corporate Solutions; 31-Dec-2024 20% SRP.RA .10.03 Review of the employee onboarding and induction programme Q3 2023/24: CMT agreed to a refresh of the staff induction programme which include a compliance section. It is anticipated that the new programme will be fully completed by end Dec 2024, with a phasing of improvement actions being delivered throughout 2024. HR Strategic Lead 31-Dec-2024 5% Page 166 of 182
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17 SRP.RR.11 Corporate Policies and Strategies Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.11 Risk cause Policies may not match the aspirations of the Council's Strategic priorities or cultural perspective. Risk event Policies not monitored may become out of date. Policies not reviewed to ensure alignment with strategic priorities. Risk effect Policies not monitored could result in non-compliance with legislation Policies not aligned to strategic priorities will inhibit rather than support implementation of strategic priorities. Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 1. Single Midlothian Plan providing overarching direction 2. Service plans aligned to Single Midlothian Plan. 3. Leadership team to ensure correct approaches are adopted to get the right results. 4. Strategic housing investment plan, submitted to Scottish Government. 5. Capital Strategy 6. Integrated Joint Board (IJB) Plan 7. IJB Strategic needs assessment 8. Midlothian Local Development Plan 2017 – the Council’s corporate spatial strategy. 2 3 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .02.04 Transformation Blueprint 2023 to 2028 Q1 24/25: As Q4 23/24. Q4 23/24: Work on sprints continues with some reporting to BTSG in the run up to June Council with the majority of others scheduled for August. BTB is now meeting fortnightly to encourage and closely monitor progress. To support monitoring of progress a dashboard has been developed and this is shared with CMT and BTSG as a standing item. Q3 23/24: Regular review and updates to the Business Transformation Board which meets monthly. Transformation Manager in post and sprints initiated. Chief *Executive; Chief Finance Officer; 30-Jun-2028 20% SRP.RA .03.07 Review of policy and creation of a policy register Q4 23/24: work to develop policy register ongoing. Chief Officer Corporate 31-Dec-2024 10% Page 167 of 182
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18 Q3 23/24: Corporate Solutions has initiated a review of policies in the Council, aligned to legislation changes and statutory requirements for the Local Authority. Work is ongoing to gather information across the Council to inform an action plan and a refreshed policy register. It is estimated that this work will take until end 2024 to be completed. Solutions SRP.RA .11.05 Antisocial Behaviour Policy Q1 24/25: Member Briefing on Housing and Antisocial Behaviour to be prepared and presented during Q2, with report to Council to follow. Q4 23/24: Midlothian Community Action Team SLA 2024-25 contains tackling ASB as a strategic objective. Chief Officer *Place; 31-Dec-2024 0% SRP.RR.12 Internal Control Environment Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.12 Risk cause Work procedures/process inadvertently create the capacity for fraud and waste to occur. Internal Controls requiring more time, effort or cost than the risk being managed. Mangers failing to follow procedures and keep systems updated with accurate information. Risk event Persons exploiting opportunities to commit fraud. Waste and errors Changing risk landscape associated with remote working solutions. Risk effect Waste and loss Risks over managed with risk controls costing more than the potential loss being managed. Increased opportunity for fraud or financial loss has direct impact on management information. Has adverse effect on service performance. Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 1. Services have been prompted to consider fraud and waste within Service Risk Registers. 2. Risk Management Guide provides direction on the need to balance time, effort and cost against benefit of risk controls. 3. Internal Audit examine internal control arrangements based largely on the risk registers. 4. Corporate Fraud team in place who assist managers to undertake fraud risk assessments in their areas (focused on priority areas) and provide advice and guidance on fraud related matters. Active participation in the National Fraud Initiative to investigate matches. 5. Whistleblowing Policy and Counter Fraud Policy in place (subject to review) with whistleblowing channels available to report concerns (anonymously if required). 6. Internal and external assurance. Annual Governance Statement which involves obtaining assurance from Management over controls in their Service. 7. E-learning for staff to complete mandatory training for fraud awareness. 8. Regular updates to Audit committee on progress with recommendations made by Internal Audit. 9. Remind staff to declare secondary employment/outside interests and gifts & hospitality 10. Induction for all new employees (with service exceptions), including legal, HR, procurement, health and safety. Control at entry to organisation. 11. The Integrity Group continues to meet to improve the Council’s resilience to fraud, corruption, theft and crime (including cybercrime), maintaining proper risk management, governance and internal control processes and systems to ensure probity in systems and operations, and 2 3 Page 168 of 182
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19 mitigation of risks, including the prevention, detection and resolution of fraud and irregularities. Management is also responsible for checking that the arrangements and controls are operating effectively and obtaining assurances from internal compliance, risk, inspection, quality, and control functions. Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .12.04 Review of Serious Organised Crime (SOC) group Q1 24/25: Initial meeting with Police is planned to discuss strategy. Q4 23/24: Chief Officer Place on national SOC working groups and utilising forums to inform strategy. Q3 23/24: Work underway to refresh SOC Strategy, working with Police Scotland and neighbouring authorities. Draft report expected Q4. Chief Officer *Place; Health, Safety & Resilience Manager 31-Mar-2025 50% SRP.RR.13 Climate Change Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.13 Risk cause Council Services not adequately engaged, resourced or directed to fulfil the requirements of the Climate Change Act. Risk event Council Services not responding to the Climate Change Act with sufficient pace. Risk effect Council failing to meet its obligation under the Climate Change (Scotland) Act 2009 and incurring the associated reputational damage. Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Planning, Sustainable Growth and Investment *Manager; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; 1. Statutory requirement to report on compliance with climate change duties. 2. Council Carbon Management Plan 3. Approval of a Corporate Climate Change Strategy and action plan 4. CPP Board for Climate Change to bring strategic focus and oversight of plans and progress. 5. Resilience Seminars 5 5 Page 169 of 182
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20 Chief Officer Young People and Partnerships Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .13.04 Delivery of the BTB Board Carbon Neutral by 2030 Q1 24/25: Member Briefing on Climate Action Plan being prepared for presentation in Q2/3. Q4 23/24: Climate Action Plan finalised and will be presented to Council in 2024/25. Q4 22/23: This action will be progressed when the Council’s adopted Climate Change Strategy is reviewed in 2023/24. Planning, Sustainable Growth and Investment *Manager; Chief Officer *Place; 31-Mar-2030 0% SRP.RA .13.05 Development of the Strategic Plan 2023- 27 Q4 23/24: Climate Action Plan finalised and will be presented to Council in 2024/25. Q4 22/23: Carbon Neutral by 2030 is a strategic priority. Planning, Sustainable Growth and Investment *Manager; Chief Officer *Place; 31-Mar-2025 50% SRP.RR.14.1 Scottish Child Abuse Inquiry Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.14.1 Risk Cause: Midlothian Council and its legacy organisations, predating the creation of Midlothian Council in 1996, have been involved in the provision of care of children going back to living memory. During this time there is the likelihood that the care children received fell below standards of care now in place. There is the further potential that some people in the care of Midlothian Council and its legacy organisations were subject to abuse by those who were employed to care for them. Risk Event: The Scottish Government began an Inquiry into cases of Child Abuse Chief *Executive; Chief *Social Work Officer The Council initially set up an Inquiry Project Team, however this is no longer required as we have an experienced worker overseeing all requests for the Scottish Child Abuse Inquiry Team. Work is ongoing and we have the additional tasks of supporting and responding to enquiries from the redress team. The Inquiry Team have established a Project Plan covering: 1. Residential establishments, List D Schools and Foster Carers: identifying Children’s homes, Foster Carers and any List D Schools in Midlothian over the last 100 years and researching historic records. 2. Record Audit: reviewing the Council’s existing paper and electronic recordkeeping systems to identify relevant records and map them to residential establishments. This also includes, where possible, noting the 4 4 Page 170 of 182
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21 occurring prior to 17 December 2014, the intention of this enquiry is to identify historic case of abuse which have to date gone unreported. The most recent Section 21 notice around the Foster Care Case Study is a significant piece of work. The request for information from 1930 to date is very challenging given the volume of files that require to be read and analysed. Risk Effect: If the inquiry finds historic cases of abuse in Midlothian this could damage the reputation of the Council and could place doubt in the eyes of the public as to the safety of these currently in care. There is significant scope for a substantial financial impact arising from claims of historic abuse. Some existing employees may be affected by the inquiry and subsequent claims of abuse. We have requested an extension for Parts B, C & D of the last Section 21 to April 2020, which has been granted. To date there has been no evidence from the extensive file read to suggest there has been systemic abuse within our foster care system. Council’s historic recordkeeping policies, such as retention schedules. 3. Cataloguing/Indexing: checking and updating existing recordkeeping systems for accuracy and consistency, enabling effective information retrieval when requested by the Inquiry. The Project Team have established a Project Plan covering: 4. Ascertaining the succession and insurance position in relation to potential historic child abuse claims. 5. Ascertaining and agreeing Midlothian Council’s legal position/ approach in dealing with the potential historic child abuse claims. 6. Identifying the need for guidance, protocol, templates etc. should/if any claims be made against the council. 7. Consideration to identifying if additional staffing will be required as expected deluge of FOI’s SARs in 2018 from solicitors of potential claimants. 8. Project team is in place with project plan with a range of identified actions which are being progressed. Monthly meetings to progress project plan. 9. The SCAI Social Worker is very competent and experienced in this area of work and provides quarterly updates on their findings from the file read. This is a real strength within this area of work. The CSWO and Principal Solicitor meet regularly with the social worker to discuss findings from the file read. Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .14.03 Foster Care and Residential Care File Review Q4 23/24: Foster care enquiry completed. Q3 23/24: Inquiry has heard all the evidence for the Sect 21. Childrens Services Management Team; Chief *Social Work Officer; Chief Officer Young People and Partnerships 31-Mar-2024 100% Page 171 of 182
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22 SRP.RR.16 Growing Council Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.16 Risk cause Population growth in Midlothian over the next 10 to 15 years will see Midlothian become the fastest growing Council in Scotland. Between 2014 and 2039, ages 0-15yrs, population is projected to increase by 20% and for ages 75+ population projected to increase by 100%. Risk event Failure to resource and plan for these rises will significantly impact the Councils ability to fulfil its statutory obligations in relation to these groups. Risk effect Inadequate capacity within the school estate to cope with the projected increase in pupil numbers. In sufficient provision to support an aging population placing costly inefficiencies on other parts of the care sector. General population increase placing additional demand on infrastructure including GP services. Increased pressure on infrastructure, services e.g., waste collection and growth of road network as new development roads are adopted. Head of *Adult and Social Care; Chief *Executive; Executive Director *Place; Fiona *Robertson; Chief Officer Young People and Partnerships 1. Local development plan and supplementary guidance on developer contributions. 2. Services planning future service provision on the basis of anticipated service demands 3. The change programme 4. Learning Estate Strategy 5. Capital Plan Prioritisation 6. Strategic Housing Investment Strategy 7. Rent Review Strategy 8. Joint needs assessment used to develop - IJB Strategic Plan 9. Capital Plan and Asset Management Board will scrutinise and challenge slippage on capital programmes recognising that slippage can have an adverse impact on financial sustainability and also the delivery on assets required to support capital growth. 10. City Deal provides the opportunity to support inclusive growth. 4 4 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .02.06 Capital Plan prioritisation Q1 24/25: Work continues on Capital Plan prioritisation. Q4 23/24: Work continues on Capital Plan prioritisation. Head of *Development; Executive Director *Place; Chief 31-Oct-2024 75% Page 172 of 182
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23 Q3 23/24: Work continues on Capital Plan prioritisation. Finance Officer; SRP.RR.17 UK Decision to leave the EU Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.17 Risk cause UK vote to leave the European Union Risk event UK leaving the European Union Risk effect The impacts associated with the UK's decision to leave the UK have yet to be realised and will only become clear once the final terms of the UK's departure are finalised. There are some direct potential impacts such as an end to EU funding of Council co-ordinated projects and indirect impacts on industries undertaken within the geographical area which have relied on EU funding, such as agriculture. There are wider potential implications arising from uncertainty regarding the resident status of EU nationals, post any exit agreement, and the availability of workers from outside the UK accessing the job market here in the future. These factors have the potential to impact on the availability of the right people with the right skills being available to help grow the economy here in Midlothian. One area this could affect the Council could be in the delivery of future building projects within Midlothian which could curtail further economic growth. Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships 1. Risk and Resilience Group 2. Taking a risk management approach to identifying and assessing anticipated impacts 3. Working with a range of national and local bodies to inform preparatory arrangements. 4. EU Settlement scheme promoted on Council Internet to support those living and working in Midlothian to access the Home Office scheme. 4 5 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .17.01 Refresh of Economic Strategy Q1 24/25: Member Briefing scheduled for 3rd October. Chief Officer *Place; 30-Jun-2024 60% Page 173 of 182
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24 Q3 23/24: Draft Economic Strategy prepared; to be presented to Council in Q1 24/25. SRP.RR.19 Health & Safety Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.19 Risk cause Failing to identify and rectify non- compliance with Health and Safety regulations. Risk event Employees required to undertake tasks they are not competent to. Statutorily driven health and safety protective arrangements for service users and employees not implemented correctly. Non-compliance with policy and procedure Not undertaking audits and inspections to confirm adherence to policy and legislative requirements. Risk effect Serious injury of ill health impact on employees and or service users. Negative impact on outcomes for customers/service users. Service users and employees exposed to hazards where statutory requirements exist. Statutory health and safety - duty of care over services users and employees not met. Criminal prosecution of the Corporate body and or individuals through Corporate Homicide (Corporate Manslaughter) Significant financial penalties from Criminal Prosecution. Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; David Robertson; Chief Officer Young People and Partnerships 1. Health Safety and Wellbeing Strategy & Service Plan 2. Suite of Health and Safety Management Arrangements developed setting out council response to statutory obligations 3. Comprehensive range of Health & Safety Management & Assessment based development opportunities for line managers 4. Use of Health & Safety Management Information System (SPHERA) to enhance information transfer and organisational efficiency 5. Comprehensive training programme in place to support those with responsibility for managing health and safety. 6. Use of comprehensive audit programme to confirm the application of agreed management Arrangements and Council Policy. 3 5 Related Action Code Related Action Related action latest note Managed By Due Date Status Page 174 of 182
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25 NEW Health, Safety & Resilience Service Review Q1 24/25: The Health, Safety & Resilience Service review is progressing and has identified staffing shortages to meet obligations. The report will be submitted in Q2 for consideration. Q4 23/24: Service review in progress. Chief Officer *Place; Senior Manager Protective Services; David Robertson 31/07/2024 50% SRP.RA .19.01 Delivery of Health, Safety and Wellbeing Service Plan Q1 24/25: Implementation of the Protective Services Health, Safety & Resilience Service Plan continues. The plan will be reviewed at conclusion of the service review. Q3 23/23: Implementation of the Protective Services Health, Safety & Resilience Service Plan continues. Chief Officer *Place; Senior Manager Protective Services; David Robertson 31-Mar-2025 50% SRP.RA .19.07 H&S audit across all Council estate Q1 24/25: Fire Risk Assessments/Audits progressing. A number of Zurich Insurance audits have also taken place. Q4 23/24: Fire Risk Assessments/Audits are currently priority. Q3 23/24: Work on audit report continues. Change to SFRS response incorporated into Fire Action Plans and Management Arrangements. Chief Officer *Place; Senior Manager Protective Services; David Robertson 31-Mar-2025 33% SRP.RR.21 Cyber Security Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.21 Risk Cause Malicious attempts to damage, disrupt or gain unauthorised access to Council computer systems, networks or devices. Risk Event The Council is at significant risk of cyber- attack from Ransomware Phishing Emails, Advanced Persistent Threats (APT) and Distributed Denial of Service Attacks (DDOS) attacks. Hacking and Social Engineering. Risk Effect Access to Council systems by cyber criminals and foreign intelligence agencies Head of *Adult and Social Care; Cyber Security Information Governance and *Compliance Manager; Head of *Development; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive 1. Implementation of and compliance with the Scottish Government Cyber Resiliency Public Sector Action Plan 2. Cyber Essentials Plus Certification 3. Public Sector Network Certification 4. Appropriate technical and organisational measures deployed to reduce the likelihood and impact of an attack 5. Having adequate skills and knowledge in the organisation 6. Implementing Scottish Government Cyber Security Action Plan 7. Creating a Midlothian Cyber Defence Action Plan. 8. Adoption of the NCSC (National Cyber Security Centre) Active Cyber Defence programme 3 5 Page 175 of 182
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26 for financial, commercial or information gathering reasons. This could lead to significant financial losses, data compromise and subsequent regulatory sanction if our technical and organisational measures are deemed insufficient. Severe business disruption including the almost total loss of critical IT systems and networks leading to significant service delivery challenges. Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; David Robertson; Chief Officer Young People and Partnerships Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .21.1 Appropriate Technical and Organisational Measures Q1 24/25 - Action/mitigation includes: - 1. Achieved Cyber Essentials Plus Certification 2. Achieved PSN Certification from the Cabinet Office 3. Organised and facilitated a leadership forum exercise on cyber resilience 4. Successfully responded to 15 significant cyber security events 5. Provided significant Information Governance and Security advice for the continued deployment of M365 and Google Workspace Q4 23/24: Ongoing review of cyber incident response plans. Information Governance and Security processes for M365 deployment ongoing and a number of milestones achieved to progress further rollout of applications within M365 environment. Leadership Forum tabletop session scheduled June 2024. Q3 23/24: Action/mitigation includes: - 1. Updated cyber incident response plans. 2. Cyber security presentations to Elected Members and Place directorate. 3. Conducted phishing exercises. 4. Successfully responded to 13 cyber security events. Provided significant Information Governance and Security advice for the deployment of M365 and Google Workspace Q1 23/24: Action/mitigation includes:- 1. Achieved Cyber Essentials Plus Certification 2. Preparations completed for Q2 2023/2024 PSN Certification, including submission to Cabinet Office. 3. Provided significant Information Governance and Security advice for the deployment of M365 and Google Workspace 4. Responded to numerous threat alerts to ensure the security of the Council’s network Cyber Security Information Governance and *Compliance Manager; Chief *Digital Officer; 31-Mar-2025 75% Page 176 of 182
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27 5. Engaged with Cyber Incident Response company to review the Councils Cyber Incident response capability in Q2 SRP.RR.22 Cost of Living Crisis Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.R R.22 Risk cause The UK is currently facing an unprecedented storm of increasing prices, bills and tax. The 40-year high inflation rate of 9% is the main driver of the cost of living crisis which has outstripped wage and benefit increases. Risk event Rapid ongoing rise of energy prices as well as food and drink prices. Risk effect The impact on households is already being noted with 87% of adults in the UK reported an increase in their cost of living in April 2022 (Office for National Statistics; Francis-Devine et al, 2022). The price rises will impact low-income households the hardest as a larger proportion of their bills are on energy and food. The Resolution Foundation estimates an extra 1.3 million people will fall into absolute poverty in 2023, including 500,000 children. Chief *Executive; Director *Health and Social Care; Executive Director *Place 1. Council Cost of Living Task Force to oversee the Council’s response to the crisis 2. Allocation of LACER funding to support those most affected 3. Strategic Evaluation Partner appointed to create poverty profile 4. Community Planning Partnership has established a Midlothian Strategic Poverty Prevention Group co-chaired by Council Leader and Director of Public Health 5. New Child Poverty chair and lead appointed (Executive Director Children, Young People and Partnerships) 6. Child Poverty self-evaluation underway with Improvement Service 3 5 Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.RA .22.1 Cost of Living Task Force Q1 23/24: Meetings continuing. Chief *Executive; 31-Mar-2024 100% SRP.RA .22.2 LACER funding Q2 22/23: Identification of 15 trusted partners to distribute funding in communities for food and fuel, wash and dry provision and support to establish reheatable food initiatives. Lifelong Learning and Employability; 31-Mar-2023 100% Page 177 of 182
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28 Strategic Opportunities SRP.OP.08 Capital Projects - Housing Risk Code Risk Identification Managed by Risk Commentary Risk Evaluation SRP.O P.08 26% reduction in Affordable Housing Supply Programme grant to Midlothian and continued high build costs will affect ability to deliver housing programme. Projects progressing, with Timeline, Budget, Risk and Resource categorised as parameters on a RAG status, with any Red classifications identified and reported. Executive Director *Place; Head of Development 1. Newbyres, Gorebridge: Timeline impacted with potential ground conditions and delay with peer review process. This has since been addressed and now on site. 2. Edmonstone Road, Shawfair – Timeline, Budget and Risk impacted with Stewart Milne entering administration. External procurement advice being sought for engaging new developer. 3. Newton Church Road, Danderhall – Timeline impacted with delays to tender process as contractors requested extensions and in delivering tender report. Tender report due 18th September. Phase 5 housing programme has been reviewed to ensure affordability within the Housing Revenue Account, allowing for reduced levels of grant. Timeline Budget Risk Resource R G G G R R R G R A A G SRP.OP.09 Capital Projects – Transport, Net Zero & Infrastructure Risk Code Risk Identification Managed by Risk Commentary Risk Evaluation SRP.O P.09 Cost of delivering enabling infrastructure projects has risen, resulting in significant funding gap emerging. Projects progressing, with Timeline, Budget, Risk and Resource categorised as parameters on a RAG status, with any Red classifications identified and reported. Executive Director *Place; Head of Development 1. A701 Relief Road 2. A701 Sustainable Trasport Corridor 3. A701 Straiton Junction Improvements For all highlighted projects, estimated cost significantly exceeds budget available to deliver project. For all highlighted projects, addressing requirement for investment in Timeline Budget Risk Resource A R R G A R R G Page 178 of 182
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29 A701 corridor in phases with prioritisation applied. Bush Loan Junction progressing ahead of remaining programme fully funded by ESESCRD funding. A R R G SRP.OP.10 Capital Projects – Children, Young People & Partnerships Estates Programme: Primary Risk Code Risk Identification Managed by Risk Commentary Risk Evaluation SRP.O P.10 Projects progressing, with Timeline, Budget, Risk and Resource categorised as parameters on a RAG status, with any Red classifications identified and reported. Executive Director *Place; Executive Director CYPP; Head of Development 1. Mayfield/St Lukes PS New Build: Tender return from Stage 1 exceeds available budget. Programme delayed for project revision. Existing school remains safe while operational. 2. Kings Park PS Extension & Refurbishment: No available budget to undertake extension. Condition and suitability of school to be addressed. 3. Rosewell PS Extension: No available budget to undertake extension. Condition and suitability of school to be addressed. 4. Mauricewood PS Extension & Refurbishment: Rising roll and catchment review requires investment in school to address capacity and suitability. Limited budget available. Design team appointed to develop investment in school that aligns with budget available from Developer Contributions. 5. Bilston PS Extension: Rising roll and catchment review requires investment in school to address capacity and suitability. Limited budget available. Design team appointed to develop investment in school that aligns with budget available from Developer Contributions. Timeline Budget Risk Resource R R R A R R R A R R R A R A A A R A A A SRP.OP.09 Capital Projects – Children, Young People & Partnerships Estates Programme: Secondary Risk Code Risk Identification Managed by Risk Commentary Risk Evaluation SRP.O P.09 Projects progressing, with Timeline, Budget, Risk and Resource categorised as parameters on a RAG status, with any Red classifications identified and reported. Executive Director *Place; Executive Director CYPP; Head of Development 1. Beeslack HS Replacement: Site acquisition being progressed, however dependent on planning being achieved (expected Nov 24). Contractor appointment delayed. Programme behind due to changes in scope / design. 2. Shawfair All Through: Site acquisition complete. School location fixed with design team. Remediation programme being revised. School target date of 2027 likely to be missed. Timeline Budget Risk Resource A A A G R A A A Page 179 of 182
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30 Outcome of design process to determine cost of project and budget position. Design outcome to be to adhere to available budget. Smaller school will reduce build programme. Seeking to make efficiencies in remediation programme. 3. Penicuik HS New Build: LEIP target for delivery is Dec 2026, however programme for occupation is July 2027. Cost reports tracking higher and risks identified in refurbishment works. Removing requirement for modular units and minimising enabling works will assist minimising impact on GSCP. Design review can bring project into budget. SFT advising if additional LEIP funding available to address abnormal costs. A A A G SRP.OP.09 Capital Projects – Regeneration Risk Code Risk Identification Managed by Risk Commentary Risk Evaluation SRP.O P.10 Projects progressing, with Timeline, Budget, Risk and Resource categorised as parameters on a RAG status, with any Red classifications identified and reported. Executive Director *Place; Head of Development 1. Vogrie Changing Places: issues with contractor. 2. Destination Hillend: Alpine Coaster delivered with access and parking infrastructure. Project absorbed risk and contingency. Delays to delivery resulting from issues with access / water mains. Main Building tender return exceeded budget. Next Phase to be recast. Interim works on water supply and drainage required. 3. Hopefield Industrial Estate: Updated financial model required. Timeline Budget Risk Resource R A R A R R R A R A A G SRP.OP.04 City Deal Risk Code Risk Identification Managed by Risk Control Measures Likelihood Impact Risk Evaluation SRP.O P.04 South East Scotland Region City Deal - a bid for funding to Scottish and UK Governments to accelerate economic growth through investment in infrastructure/ housing/ skills and innovation. 200 Council Houses linked to the City Deal. Head of *Adult and Social Care; Chief Operating Officer *Education; Chief *Executive; Director *Health and Social Care; Chief Officer *Place; Executive 1. City Deal signed in August 2018. 2. Maintain strong Midlothian involvement through the City Deal governance structure. 3. Midlothian City Deal Key Officer (Internal) Group. 4. Securing best arrangements for Midlothian through close liaison with partners and conclusion of business cases. 4 5 Page 180 of 182
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31 Director *Place; Chief Officer Corporate Solutions; Chief Finance Officer; Chief Officer Young People and Partnerships Related Action Code Related Action Related action latest note Managed By Due Date Status SRP.O P.04.02 Realisation of outcomes of respective workstreams Q1 24/25: Work continues on the relevant programmes. Executive Director *Place 31-Mar-2025 10% Page 181 of 182
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