1. Costings Workshop Simon Wakefield Scottish Parliament Financial Scrutiny Unit June 2016

2. Put these costs in order A: cost of new Forth bridge B: cost of building tram network in Edinburgh C: Total peak support by UK government to UK banks D: Amount claimed on expenses on chips by one MSP E: annual cost of providing free prescribed drugs

3. The Scottish Parliament

4. Financial Scrutiny Unit

5. Aim of policy costing session At the end of this session, you should have a clearer understanding of how and why cost estimates can be used in a parliament, how they are compiled and scrutinised (in Scotland at least), and why they can be important.

6. Cost estimates Some case studies from Scotland Types of parliamentary costings, and who might do them? Two checklists – one for doing, and one for scrutinising Overview

7. Cost estimates What do you need them for? Developing and scrutinising policy Preparing and scrutinising legislation Planning and scrutinising infrastructure investment

8. Developing and scrutinising policy

9. Preparing and scrutinising legislation

10. Scrutinising infrastructure investment

11. Executive Political parties Parliament staff (budget offices) Academics and independent organisations Members and their staff Cost estimates Who might prepare and scrutinise estimates?

12. Cost estimates How can they be prepared and scrutinised? Scrutiny in practice... when? Easier to scrutinise costs than develop them… No official guidance for when or how to scrutinise ….as much and as often as possible –Ideally before legislation is introduced, or a project commences –After legislation has been introduced, or a project is complete –When policy changes are proposed –In response to published documents/reports –And as part of regular monitoring and evaluation …but need to consider proportionality and resources available

13. Cost estimates Some case studies from Scotland Preparing a costing – worked examples Family grant Extending eligibility of carers’ allowance Extending free childcare

14. Family grant Provide a one off grant of £100 to all mothers of new-born babies in Scotland Background: In Scotland in 2014 there were 27,699 births

15. Support carers in full time education Provide £50 per week for all carers who are in full time education Background: Carers are defined as those providing 35 hours or more care per week. 2011 census showed there were 7,000 people aged 16-24 providing 35+ hours of care Benefits data shows there were already 3,800 individuals aged 16-24 receiving carer’s benefits 2011 Census showed 2,000 students providing 35+ hours of care

16. Extend free childcare Provide 1,140 hours of childcare a year to children aged 1-4 in Scotland Background: Children aged 3-4 in Scotland are currently entitled to 600 hours of free childcare In 2014 the number of children aged 1-4 in Scotland were 1 – 57,014 2 – 59,076 3 – 60,880 4 – 58,026 Average hourly childcare costs in 2015 were £5.90

17. Cost estimates How can they be prepared and scrutinised? Charging some people for prescribed drugs How much could charging raise? Identify revenue drivers –Number of health users –Their demand for prescriptions –Charge per prescription –Exemptions Look at what policy variables you have (charge and exemptions) and how changing them might impact the revenues Ensure that any assumptions and limitations are highlighted.

18. Cost estimates How can they be prepared and scrutinised? Costs of an ageing population How much could demographic change cost? Identify areas of spend affected –If many, highlight the largest items –For demographic change this included; health, pensions and personal care Identify the cost drivers in each area –E.g., for pensions these were; the no. of retired public sector workers, contribution rate, pensionable age Calculate baseline cost –Compare it with other scenarios to see which policies might effectively mitigate the challenge

20. Cost estimates How can they be prepared and scrutinised? Preparing a costing – main points Identify the areas of spend affected Identify the cost drivers in each area Calculate baseline cost using up to date data, adjusted for different circumstances if necessary Undertake sensitivity analysis to see what policy levers are most effective at achieving any specific goal Present the costing and different scenarios if appropriate Ensure that assumptions are explained and any limitations of the costing are set out

21. Cost estimates How can they be prepared and scrutinised? Preparing a costing – some useful aids Checklist 1 - Scottish Parliament Financial Scrutiny Unit template Scottish Government guidanceScottish Government Australian PBO guidanceAustralian PBO Other PBOs Euromod tax-benefit microsimulation model

22. Cost estimates How can they be prepared and scrutinised? Scrutiny of costings: checklist 2 Is Methodology clearly set out? What Assumptions have been made –Realistic? –Evidence-based? What Data have been used –Relevant? –Up-to-date? –Reliable? Is there any Sensitivity analysis? Do Alternative approaches produce similar results? Is the level of Detail proportionate?

23. Cost estimates How can they be prepared and scrutinised? What if the cost estimate turns out to be wrong? Almost inevitable –Reliant on assumptions and estimates –Scope of legislation or policy can change No excuse not to try! “Estimating costs (and savings) can be difficult but rarely if ever impossible” (Scottish Government guidance) Possible responses to scrutiny: –Better informed policy –Changes to policy –Abandonment of policy –Better costings next time… Effective scrutiny encourages continued improvement in costings

24. Impact?

25. Thank you

26. Who asks? (over the last year) Compared to share of MSPs