Scottish Government Underspent The Budget By £778 Million In 2018/2019

23rd October 2019

The Scottish Government has substantially reduced the value of £140 million-worth of loans and guarantees to private companies, says the public spending watchdog.

The 2018/19 audit of the government's consolidated accounts were unqualified and show that the overall budget of £36,915 million was underspent by £778 million.

Loans totalling £45m to Ferguson Marine Engineering Limited (FMEL) were reduced in value to nil at the end of the financial year due to the shipyard's financial difficulties. The government also reduced:

an equity stake of £37.4 million in engineering firm Bi-Fab to £2 million to reflect expected losses

a £39.9 million loan to Prestwick Airport to £6.9m

a £21.4 million fee for providing financial guarantees to Lochaber Aluminium Smelter to nil to reflect new accounting standards

Improvements have been made to the government's governance arrangements in the last year. However, a commitment to publishing a consolidated account covering the whole of Scotland's public sector has not been fulfilled. And the government's second medium-term financial strategy lacks indicative spending plans and priorities.

The audit also noted the 2018/19 Social Security Scotland accounts were qualified by the auditor, specifically in relation to Carer's Allowance. This is related, in part, to the benefits agency's ongoing reliance on the Department of Work and Pensions to deliver payments and is explored in further detail in the Auditor General's separate report- Opens in a new window.

Caroline Gardner, Auditor General for Scotland, said:"The Scottish Government's financial reporting has taken a step backwards at a time when the uncertainty surrounding EU withdrawal will pose unprecedented challenges for the management of public finances. Parliament needs better information to be able to better scrutinise ministers' financial decision-making and to ensure value for money is achieved from a limited budget pot."

"There is a lot more work to be done to manage Social Security Scotland's current reliance on the DWP. More complex and costly benefits are due to be delivered by the agency over the next few years, which increases the potential impact of error and fraud. The agency needs to think about what arrangements will be needed to manage that scenario."

Read the full report at https://www.audit-scotland.gov.uk/report/the-201819-audit-of-the-scottish-government-consolidated-accounts

From a podcast about the report

Podcast - Scottish Government Accounts 2019

I'm here with one of our senior audit managers, Michael Oliphant, to talk briefly about the Auditor General’s latest report on the Scottish Government’s consolidated accounts.

Michael, this year’s report has a real focus on the value of loans and guarantees the government has provided to private companies. What did you find in the course of your audit?

One of our main findings is that the government has substantially reduced the value of around £140 million-worth of loans and guarantees to private companies. What’s known as impairment. That doesn’t mean that those sums have been written off, but it does mean that the government doesn’t expect to recover their full investment at this point.

What are the details of that? Which loans have been affected?

Loans totalling £45m to Ferguson Marine Engineering Limited were reduced in value to nil at the end of the financial year due to the shipyard's financial difficulties. The government also impaired:

· an equity stake in engineering firm Bi-Fab

· loans to Prestwick Airport

· and a fee for providing financial guarantees to Lochaber Aluminium Smelter.

Looking at your wider findings, you also say that while there have been improvements in the government’s governance arrangements, more work need to be done on their financial reporting?

Last year the Scottish Government published its first medium-term financial strategy, and that was a really positive step forward in enabling more thorough Parliamentary scrutiny of ministers’ spending plans. But things have taken a step backwards with this year’s strategy, which lacks the basic components of a financial plan such as indicative spending plans.

There’s also no detail on how the government would address a possible £1 billion shortfall in its budget due to forecast errors. And they’ve yet to publish a consolidated account covering the devolved public sector in Scotland.

Why do these things matter?

The Scottish Parliament needs better information to be able to better scrutinise ministers' financial decision-making and to ensure value for money is achieved from a limited budget pot. That would matter at any time, but the Scottish Government's financial reporting has taken a step backwards at a time when the uncertainty surrounding EU withdrawal will pose unprecedented challenges for the management of public finances.

Michael, thank you very much indeed.

And if you want to read our report on the government’s accounts, or any of our other work from 2019, you can download it from our website – audit-scotland.gov.uk