Official Report 855KB pdf
Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) Order 2026 [Draft]
Our second item of business is consideration of a draft statutory instrument. The Delegated Powers and Law Reform Committee, in its report, made no comment on the instrument. I welcome Fiona Hyslop, Cabinet Secretary for Transport, and her supporting officials, Ninian Christie, lawyer for the Scottish Government, and Lee Shedden, head of rail sponsorship and regulation for Transport Scotland.
The instrument is laid under the affirmative procedure, which means that it cannot come into force unless the Parliament approves it. Following the evidence session, the committee will be invited to consider a motion to recommend that the instrument be approved. I remind everyone that the Scottish Government officials can speak under the current item but not in the debate that follows.
I invite the cabinet secretary to make a brief opening statement.
Good morning, and thank you for inviting me to attend to discuss the draft SSI.
Scottish Rail Holdings Ltd oversees the delivery of rail passenger services by its wholly owned subsidiaries ScotRail Trains Ltd and Caledonian Sleeper Ltd, on behalf of the Scottish ministers. The Scottish ministers are the sole shareholder of Scottish Rail Holdings Ltd, which was established as a company under the Companies Act 2006 and is classified by the Office for National Statistics as a central Government body.
In June 2022, an order was made under section 483 of the 2006 act to require the accounts of Scottish Rail Holdings to be audited by the Auditor General for Scotland. That engages the relevant provisions of part 2 of the Public Finance and Accountability (Scotland) Act 2000. Although ScotRail Trains Ltd is a subsidiary company and therefore part of the Scottish Rail Holdings Ltd group in terms of section 479A of the 2006 act, the order did not extend the requirement for the Auditor General to audit individual accounts. That was due to a lack of resource capacity on the part of the Auditor General at the time. That has subsequently been addressed.
I now seek the support of the committee to progress the draft order to enable the accounts for ScotRail Trains and Caledonian Sleeper to be audited by the Auditor General for Scotland. Currently, the audits for both subsidiaries are undertaken by an external auditor at significant cost, and the order will enable more efficient and effective audits to be undertaken at less cost to the taxpayer.
I am happy to answer any questions that members have.
Thank you very much, cabinet secretary. I understand the reasons that you have given.
How much were the people of Scotland paying for the previous audit?
On the basis that that audit was not being done by the Auditor General, due to lack of capacity, it was outsourced. In 2023-24, the cost totalled £515,000; in 2024-25, it was £490,000. However, we understand that, if the Auditor General conducts the audit, that should be better for the taxpayer.
That sum—£515,000—is a huge amount of money for that business. You will save money on that. I assume that there will be some cost to the Auditor General in carrying out the audit. Are you making additional funds available from the money that you are saving, or are you just expecting the Auditor General to do it for free?
No, we will ensure that the Auditor General is recompensed for the duties that are carried out on behalf of the public.
How much will that be?
Well, the audit has not been done yet.
There should be a significant saving compared with the costs of the external auditor. We do not yet know the amount, as the Auditor General has yet to advise, but there should be a significant cost reduction.
It is a good thing.
Sorry, I am scratching my head at the fact that the Auditor General has agreed to take it on without any indication of what additional resources will be given to him. If I know the Auditor General, he would not do that. He is quite a sharp cookie, and will have worked out what the implications are, surely.
I am sure that he has. It is not for me to speak on behalf of the Auditor General, but it has been agreed.
Given that it has been agreed, you will know how much money is involved. How much is it?
We are expecting the cost to reduce to £300,000 to £350,000. It is wider in scope, because public finances are involved, which the Auditor General has expertise in.
So you are saving about £165,000?
Yes.
I have one question. The subsidiaries can be audited by Audit Scotland because they receive all or most of their funding from a public body that is already audited by the Auditor General for Scotland. What percentage of its funding comes from the public? What happens if that funding goes down because more income comes from passengers? Am I understanding the situation completely wrongly?
I am not quite sure. The funding for Caledonian Sleeper and ScotRail comes to more than £800 million, which is a significant amount. You refer to the duties and responsibilities of the auditor. I am not an accountant and have not exercised audit functions, but the audit function would be the same regardless of whether the income from fares goes up, because the audit looks at the accounts, rather than at the absolute amounts from fares or elsewhere. I hope that I have understood your question correctly.
I am looking at the Companies Act 2006, which refers to companies that are “entirely or substantially” funded by a public body. You have said that the figure is £800 million.
It is fair to say that there are a few lines with good levels of income, not least the Glasgow to Edinburgh line, but the vast majority of our rail services, particularly those that are not commissioned by Network Rail, need a substantial amount of public funding. The subsidy that rail receives, not only in our country but across the United Kingdom and elsewhere, is substantial.
I am trying to work out whether that is where the company gets most of its funding from.
No.
The act refers to all or most of a company’s funding.
The Scottish Government provides most of the funding, because the service is subsidised.
So, you are saying that it is not most of the funding overall. Is that correct?
Convener, can you help me understand where the question might be going? I am not really sure.
I am trying to make sure that what we are being asked to approve today is actually legal.
Lee Shedden might want to come in and explain the overall funding situation. The vast majority of the funding is public, which is why the company is audited as it is. There is scrutiny in line with the Companies Act 2006, but the relevant provisions of part 2 of the Public Finance and Accountability (Scotland) Act 2000 also come into play because, as you pointed out, the subsidiaries are publicly funded.
It is right to say that most of the funding is provided by the Scottish Government, which covers just over 50 per cent of the normal operating costs. On top of that, we also provide funding for the fixed track access charges that ScotRail pays to Network Rail, with that additional figure being about £350 million. That takes the balance way over half, but it is really just a wash through because of the subsidy of Network Rail.
So, there is not really any risk of us having to undo this because the funding is not mostly public. That is what I am trying to understand.
I cannot see a scenario where that would happen, although reforms to rail are currently under way and the funding mechanism might change how that is paid.
Cabinet secretary, are any other companies in the same position as ScotRail and are privately audited?
I would prefer to get back to you about that.
Does CalMac Ferries Ltd fall into that position?
It would, but we have just moved to a contract with direct award aspects. CalMac will exist as an entity that needs to have its own audited accounts. I would rather get back to you about the technicalities of our provision.
Most, if not all, of CalMac’s money comes from the Government, does it not? It comes from contracts. CalMac gets all its money from us.
Our transport system is heavily invested in and subsidised by the Scottish Government.
I am looking for other opportunities to save money because I do not know what it costs to audit those accounts. Perhaps Lee Shedden knows.
That is not my area any more, but the figures are significant because, like ScotRail, it is a big industry.
Maybe the cabinet secretary could get back to us after the meeting to let us know.
I am happy to do so.
Thank you.
As members have no other questions, we move to agenda item 3, which is the debate on motion S6M-20027. I invite the cabinet secretary to move the motion.
Motion moved,
That the Net Zero, Energy and Transport Committee recommends that the Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) Order 2026 [draft] be approved.—[Fiona Hyslop]
Thank you. I raised most of the points that I wanted to raise during the previous item. They were about the savings that will be accrued and what the costs will be to the Auditor General. I was slightly wary about whether he will have sufficient funds and resources to cover the additional work, but it sounds as if he has already negotiated those with you, cabinet secretary.
Does anyone wish to raise any points?
Members: No.
On that basis, do you want to sum up, cabinet secretary?
I have nothing to add, convener. I am happy to take the committee’s guidance on this.
Thank you. The question is, that motion S6M-20027, in the name of the cabinet secretary, be approved.
Motion agreed to,
That the Net Zero, Energy and Transport Committee recommends that the Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) Order 2026 [draft] be approved.
The committee will report on the outcome of our debate on the draft order in due course. I invite the committee to delegate authority to me, as convener, to approve a draft of the report for publication. Is the committee happy to do that?
Members indicated agreement.
Thank you. I will suspend the meeting briefly to allow a changeover of officials.
09:16 Meeting suspended.