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Chamber and committees

Meeting of the Commission

Meeting date: Wednesday, December 14, 2022


Contents


Audit Scotland Spring Budget Revision 2022-23

The Chair

Agenda item 2 is Audit Scotland’s 2022-23 spring budget revision. Members have a copy of the spring budget revision in the meeting papers. I welcome to the meeting Professor Alan Alexander, chair of the board of Audit Scotland; Stephen Boyle, Auditor General for Scotland; Vicki Bibby, chief operating officer at Audit Scotland; William Moyes, chair of the Accounts Commission; Martin Walker, director, corporate support at Audit Scotland; and Stuart Dennis, corporate finance manager at Audit Scotland. I welcome Vicki Bibby on her first appearance in front of the commission in her role as chief operating officer.

I invite Professor Alan Alexander and then the Auditor General to make short introductory remarks if they wish.

Professor Alan Alexander (Audit Scotland)

We have none for the first agenda item, chair, if that is okay. As we have in the past, we will do an introduction to the major budget item. Is that acceptable?

That is fine. Stephen Boyle, do you wish to add anything?

Stephen Boyle (Auditor General for Scotland)

Very little, chair. Most of my remarks, like Alan Alexander’s, are in respect of our 2023-24 budget proposal to the commission. However, Stuart Dennis and I are ready to answer any questions that you or commission members have on our spring budget revision request.

The Chair

Excellent. I will ask the first question on the budget revision. The commission is aware that non-cash pension accounting arrangements have arisen in previous years. On the Lothian Pension Fund, what discussions have you had with the Scottish Government to confirm that previously agreed arrangements with HM Treasury are still in place and will meet this pension adjustment?

Stephen Boyle

I am happy to start on that and I will bring Stuart Dennis in to update the commission on the specifics of the discussions that we have had.

As you will see from our paper, the on-going volatility of pension adjustments requires the commission’s support to ensure that we remain within our financial requirement to break even each year. The volatility of very small changes to pension assumptions, discount rates and so forth has a very significant effect on the overall valuation. Therefore we, as an admitted body to the Lothian Pension Fund—as do any other members that cannot carry reserves—have to look for support. Stuart Dennis can update the commission on our engagement with His Majesty’s Revenue and Customs and the annually managed expenditure budget position, and I am happy to broaden that out as you wish.

Stuart Dennis (Audit Scotland)

The engagement with the Scottish Government happens in November each year. It requires us to let it know what our spring budget revision will be. We let the Scottish Government know that, so that it can then commence discussions for the whole of the Scottish consolidated fund, in respect of AME funding, with HM Treasury. The Scottish Government has the information in relation to our revision requirement and what are looking for.

Sharon Dowey (South Scotland) (Con)

In paragraph 16 on page 3, Audit Scotland states:

“The expectation of continuing low interest rates in the next few years will lead to large accounting adjustments in 2023/24 and beyond. In such circumstances further requests for budget revisions to meet additional pension charge adjustments will be required in the future.”

Given recent interest rate increases, what impact do you anticipate on future pension charge adjustments?

Stephen Boyle

There are changes in interest rates from the historically low levels that we have seen in recent years but, although interest rates are increasing, they remain at historically low levels. Neither Stuart Dennis nor I are actuarial experts and we continue to rely on the advice and the assumption expectations that the Lothian Pension Fund provides us. The indications remain that there will be volatility in pension valuations and the assumptions that flow from that valuation.

On the overall arrangements, as we allude to in the paper, it remains our preference to engage with the SCPA at spring budget revision times, which is when we have more certainty about what the likely valuation results will be, rather than to include that in our annual budget proposal. There is something of an element of crystal ball gazing as to what the changes might mean, whether it is about interest rates or other assumptions that are used to arrive at the overall pension valuation. Based on our submission today, we are giving as clear a picture as we have at our disposal that there is likely to be remaining volatility in both interest rates and the other assumptions that are used to produce the overall valuation. As ever, we will engage with the commission as early as we possibly can once we have that information.

Do any other commission members wish to ask any questions? Auditor General, do you want to add anything to what you have already said?

Stephen Boyle

We hope that our proposal is clear and I want to note that this is a non-cash adjustment. It is based on valuations and then accounting valuations for what our pension requirements are, based on accounting standards. We think that our proposal broadly represents the best and most transparent way in which to set out what that means, rather than including the non-cash pension adjustment requirements in our budget proposal, but we are keen to continue to engage with the commission and to keep you updated as to how that progresses.

Thank you.