“Developing financial reporting in Scotland”
I welcome Caroline Gardner, the Auditor General for Scotland. Accompanying her from Audit Scotland are Mark Taylor, the assistant director of the audit services group, and Gemma Diamond, the project manager of the performance audit group.
The devolved Scottish public sector manages and delivers public services that are crucial for almost every aspect of the lives of Scotland’s people. The Scottish Government spends more than £45 billion a year from a variety of sources, including the Westminster block grant, council tax and charges for services.
Thank you very much for that. I invite questions from the committee. One of our most vocal members on this issue is Colin Beattie, and I am delighted that he is first in the queue.
Thank you.
Very much so, yes. As I said in my opening remarks, all the evidence is that financial reporting for Scotland’s public bodies is currently good. Reports are prepared in line with the international financial reporting standards and are audited by me or by auditors whom I appoint. It is very rare for us to have to qualify an opinion or bring a matter to the attention of the Public Audit Committee. Equally, however, the context is changing. With the implementation of the Scotland Act 2012 over the next few years, Scotland will have increased revenue-raising powers, and that will bring a need for more transparency and more focus in those areas.
You touched on the Scotland Act 2012, which has implications that the committee has discussed previously. Can you confirm that Audit Scotland is fully engaged in discussions with the Government and so forth on how to develop reporting on the public finances?
Absolutely. We are involved at two levels. First, we are very much plugged into the discussions that the committee has had with the Government, Her Majesty’s Revenue and Customs and the National Audit Office about how the arrangements might work in future. Secondly, through the annual audit of the Scottish Government’s finances, my colleague Mark Taylor, who is on my right, is in close dialogue with the Scottish Government about preparedness for the new demands that will be made on the Government and the new reporting requirements. I think that we are pretty well plugged into that, although it is early days for some of the larger aspects of the act, such as the Scottish rate of income tax.
Looking at the report overall, there seems to be less comment on a lack of availability of information than there has been in previous Audit Scotland reports. It has been a consistent theme that, for legacy reasons, the Government has had a lack of information on which to base decisions. Would you say that that is not as much of an issue when we are discussing the public finances as it is when we are talking about areas such as the national health service?
Yes, you are right—that is not the focus of the report. What we are saying is that most of the information that would be required to provide a comprehensive picture of Scotland’s public finances is available and is included in the accounts of the 200 or so individual bodies that I and the Accounts Commission audit each year. What we do not have is a way to pull that together to ensure that those accounts are prepared on a consistent basis, such that that information can be presented to the Parliament in a way that lets it get the overall picture. The implementation of the Scotland Act 2012 seems a good opportunity to consider whether that gap should be filled.
You have taken a very broad approach by including not just the actual assets and the liabilities that derive from those assets directly but all liabilities in the whole public sector, from pension liabilities to anything that can be pushed in there. You have come up with quite a comprehensive figure, and yet there seem to be gaps. For example, paragraph 19 on page 13 states:
I will ask my colleague Mark Taylor to provide further specific examples in a moment, but I think that you are absolutely right: the point is that any valuation of assets and liabilities is a snapshot at one point in time that involves judgment and estimates. At the moment, we are not in a position to be able to do that for the Scottish public sector as a whole, and we think that being able to do so is increasingly important. Mark, would you like to add to that?
Thank you, Auditor General. On the broader question, the gap between the assets and the liabilities is important as a piece of information largely because it establishes a baseline against which future direction can be established. It is also important to understand—this is at the root of Mr Beattie’s question—what lies behind the figure.
Thank you. One point that alarmed me is the statement, in the top paragraph on page 18, which says:
We are saying that councils have borrowing powers, which currently do not exist for most of the rest of the public sector in Scotland and across the United Kingdom. Obviously, those powers need to be used prudently and responsibly to ensure that the best use is being made of public money and that it is not being put at undue risk.
To come back to my question, do we know of any council that has invested the money that it borrowed from the public purse in the stock exchange?
Councils have treasury management functions, which are there to take any money that is surplus to immediate requirements and invest it to ensure that the proper return is made on behalf of council tax payers and taxpayers in general. There is no implication that that is being done as an investment for the purposes of generating money, but councils should properly invest their money in line with treasury management. That is one of the things that auditors look out for as part of their audit work. We are saying not that there is an immediate concern about the use of those powers but that those powers exist and need to be understood in the context of Scotland’s public finances.
I accept that money is often borrowed a few weeks in advance of when it needs to be paid out and therefore, from a prudential point of view and for reasons of plain sense, councils should invest that money in the short term in order to keep some revenue coming in. However, I would be concerned if councils were investing that money in stocks and shares, because they might not get their money back.
Quite so. The point of the paragraph to which you referred is not to say that that is happening. As far as I am aware, the Accounts Commission’s audit work has only identified cases where the money is being properly invested in the way that you have described. Nonetheless, councils have that power.
As far as you are concerned, councils are not investing money in that way and it is just a potential issue.
As far as I am aware, that is not happening and the Accounts Commission has not identified that happening anywhere. However, those powers exist for local government in Scotland.
As I see no other members wanting to ask a question, I will ask a question of my own. However, let me first just remind the committee that we will also take oral evidence from the permanent secretary, who will be asked to respond to the report, under agenda item 5.
This report is slightly different from the usual reports that come to the committee, because it is distinctly about looking ahead as the new powers under the Scotland Act 2012 are introduced. The report is my professional advice as the Parliament’s Auditor General on the way that I think that the financial reporting by the Scottish Government should develop in that context. To be clear, the report does not focus on the issues of data quality, which I know are of real concern to the committee and come up through a number of reports on which the committee will take evidence later. This report looks at the Scottish Government’s financial reporting and the way in which the demands on it will change with the Scotland Act 2012.
You think that that is essential.
I think that that is important in the context of the Scotland Act 2012.
So it is important but not essential.
There is growing international consensus that financial transparency, with comprehensive and reliable information, is important for economic growth and for the financial sustainability of any Government. The IMF has reported on that very recently.
There are certain things that it would be impossible to look at just now, such as the share of the UK debt. Are you saying that we should be more transparent about the backlog maintenance in the NHS, for example, which you set at £773 million, and the civil service pension scheme, and so on? Are you saying that much more information should come out in the budget from the finance secretary so that the Parliament is clearer about assets and liabilities, and that the reporting should be consistent given the point that Colin Beattie made?
Those are both really good examples. In the report, we say that assets are critical to the delivery of public services but they also bring with them both risks and consequences for revenue budgets over time. Clarity about the make-up of the assets and things such as maintenance backlogs would really help.
Thank you, Auditor General. I was just being advised by the clerk, as I warned you at the beginning of the meeting that I might be.
I have a range of brief questions—I will press ahead, convener.
Yes. Each of the 200 or so public bodies in Scotland produces accounts that are in line with international financial reporting standards and are audited either by me or by the Accounts Commission in line with the global auditing standards. That reliability is there. What we do not have is a place where that information is pulled together for the Scottish devolved public sector as a whole in a way that would let you, as decision makers, make good decisions for the long term about investment, for example; that would help to hold people who are spending public money to account for it; and that would help to build public confidence and, in the future, investor confidence in the sustainability of the public finances. That has been much less important up to now but, as we move into the territory of the Scotland Act 2012 and new tax and borrowing powers, that comprehensiveness and transparency will become more important.
Exhibit 10 on page 20 of your report shows the estimated annual PPP charges. It is an interesting and revealing graph that shows the rise in the use of private borrowing. How big a portion of that graph represents the major capital projects as opposed to the cumulative total of all the minor or non-major capital projects? How significant would those major capital projects be?
I do not have those figures readily to hand and I do not want to risk misleading the committee. We could provide you with that analysis separately, if that would be helpful.
If £0.5 billion of slippage, as it were, has been revealed in the major capital projects, which receive a certain level of scrutiny, I am slightly worried that less major projects—minor projects if I may call them that, although I am not sure that £20 million projects are minor—or less high-profile capital projects may be underreported or be reported in different terms in the sense that your analysis of them would be different from the way in which the Government would report on them. Do you believe that to be the case? Is that a potential worry?
I simply do not know at this stage. We reported on the five major transport projects because they account for a large part of the infrastructure investment programme and are critical for the development of Scotland’s transport infrastructure. What I said in introducing that report to the committee still stands. The Government’s action in setting a cap for the amount of future revenue funding that it wants to commit to the revenue consequences of capital projects is a very good move. It helps transparency and it helps to ensure that decision making is sustainable.
James Dornan has a supplementary question.
You touched on the fact that the Scottish Government has already recognised some of the problems that Ken Macintosh is talking about. I believe that its intention is to lower the bar from £50 million to £20 million to ensure that there is more transparency than there is at present regarding projects that, although by no means minor, fall between those two figures. Is that true?
You will have the opportunity to explore that further with the permanent secretary later this morning. The broad point that we are making is that setting the cap is a good move and the next step is to be clear about how commitments against the cap will be reported in the future. There are a number of options for how that might be done, and it seems to us that that is the next step to be taken.
Three other members are waiting to ask questions. I ask you to wind up your questioning, Mr Macintosh.
I have a number of issues, but before we move off the subject let us return to the graph that is exhibit 10. It is divided into PPP charges for local government, the NHS, public corporations and central Government. Would the local government charges be reported only through the Accounts Commission? Are we talking about local government projects that are financed by central Government? I am thinking of schools, for example, which are central Government PPP projects. In other words, is that central Government PPP projects?
No, it is all PPP projects. The local government ones will be reported through the 32 sets of individual accounts for the 32 local authorities and will then be pulled together by the Accounts Commission in its overview report. There will be some consequences for the Scottish Government from local government PPPs, both through direct funding and because around 80 per cent of local government funding comes from the central Government pot. That is why I propose that the discussion about how the overall picture for Scotland’s public finance is presented should take place now between the Parliament and the Government.
Does the 5 per cent rule apply to the total figure or just to the blue part at the bottom of the chart in exhibit 10, which shows the charges paid by central Government?
The 5 per cent cap relates to the Government’s own investment in PPP projects, whether they be private finance initiative or non-profit-distributing. A number of definitional issues can be clarified in taking that forward, and there is a need to report commitments against that in future.
The cap covers the commitments that the Scottish Government is financing and will therefore include a portion of the local government commitments that the Scottish Government has agreed to finance. That is why we have suggested that there be very clear reporting about exactly what the cap covers and how it is being measured to ensure that, particularly in relation to local government projects, we are clear about what is being financed by local government, what is being financed by the Scottish Government and therefore what the cap relates to.
Does that also apply to NHS projects?
The situation with NHS projects is more clear cut because all NHS financing comes from the Scottish Government. The report covers commitments by NHS boards, but they are funded through funding from the Scottish Government to the 14 territorial health boards and, where appropriate, the special health boards.
I want to be clear about this. Because it comes directly from the Government, NHS spending is covered by the 5 per cent cap. Local councils are additional to that. Are projects involving Scottish Water or, say, rail-asset-based borrowing also additional?
Those are all very good examples of why we have recommended that the Scottish Government develop further its reporting about the cap and the commitments about it. Obviously, for the cap itself to be useful it is important to be clear what is and is not included; it is also important that there is reporting against that about the commitments that have been made and the timescale on which they have been made. However, the Scottish Government will wish to answer those questions for the committee as it takes forward its own thinking about the operation of the cap in practice.
The member makes a very good point, but I point out that it is covered in Peter Housden’s response to the committee and I am sure that you will get the opportunity to pursue that line of questioning when Sir Peter comes before the committee.
Thank you very much, convener.
The question of the vehicle through which forecasts are made is obviously a policy matter that falls outside my remit and which I would therefore not comment on.
But you think that it would need a period of time to bed in ahead of the new income tax rate being set and implemented.
As would be needed for all the new tax and borrowing powers under the Scotland Act 2012. The person who leads day-to-day Scottish Government audit, Mark Taylor, is keeping a close eye on the matter as part of the audit work and at the moment we have no concerns about the progress that is being made. However, there is clearly a lot to be done before the new powers come fully into effect.
Thank you, Mr McArthur. I call Bob Doris, to be followed by Willie Coffey.
I know that it is your first time in the chair, convener, but you made me smile when you asked Ms Gardner for her thoughts about Scotland taking on its share of the UK national debt. I assume that Ms Gardner would look at that only if she were auditing Scotland’s share of the UK’s assets, which seems to be forgotten about whenever the debt is mentioned. I simply wanted to put that aside on the record.
I was quoting from the report, Mr Doris. I do appreciate that that cannot be done.
I am delighted that you have clarified the matter, convener, but I thought it important to put the comment on the record.
In my view, this is a very timely moment for the conversation to start. I recognise the deputy convener’s frustration with that phrase, but I think that in order to make the best progress it is important that there is a conversation between the Parliament and the Government.
That was helpful.
We will be keeping a close eye on the Government’s preparations for the implementation of the Scotland Act 2012 through the annual audit process, and there will be an opportunity to draw the issue to the committee’s attention if necessary. That said, it might be helpful to distinguish between agreeing the principles for the development of financial reporting and putting them into practice. It takes time to change the format of annual accounts, particularly if their scope is increasing, and that will have an impact on the Scottish Government finance team and potentially on public bodies across Scotland as well as on my audit teams. There is certainly scope to make progress on agreeing principles, but a bit more time should be allowed for implementation to take account of the realities of doing that well and in ways that support the Parliament as well as they can.
That, too, was helpful.
First, I want to offer a couple of comments. For a start, I think that we can see the difficulty of establishing a baseline. Members have already mentioned a number of items that might not be covered in the asset base or indeed on the liability side and I look forward to seeing whoever it might be attempting to reach an agreement on what that baseline should be.
The framework is already in place; after all, all public bodies in Scotland already prepare their accounts to a common accounting framework. There are, as Mark Taylor outlined, some differences around the accounting policies for valuing certain assets and liabilities, but that can be ironed out in the process. Interestingly, at a UK level, there are whole-of-Government accounts that provide that kind of comprehensive picture but we do not have the subset that relates to Scotland as a whole. Although there are consolidated accounts, they exclude not only local government but some other parts of the public sector.
You mentioned outcomes, performance and so on. How might we take things further with regard to reporting on such matters? That has been the subject of discussion not just by this committee but elsewhere for a number of years now.
It is a great question, but it was not the subject of this report. At the moment, we are engaging with the Scottish Government in the development of the outcomes approach and what that will mean for the way in which we audit Scotland’s public services. I hope that we can show more of that in future but this report is more about reporting the finances side of the equation rather than the outcomes and performance side.
I appreciate that response.
I thank the Auditor General and her staff for their evidence. We will now change panels.
“Scotland’s key transport infrastructure projects” and Major Capital Projects (Update)
The next item is oral evidence on the Auditor General’s report “Scotland’s key transport infrastructure projects”, and on the Scottish Government’s major capital projects update. I remind members that, following our evidence from the witnesses under this item, Sir Peter Housden will go on to give evidence on developing financial reporting in Scotland. I know that we are likely to stray into that, but I ask members to keep their questions on financial reporting until the next agenda item.
Thank you, deputy convener. As you said, I am accompanied by my colleagues. Ainslie McLaughlin and David Middleton are particularly able to help the committee with questions on the portfolio of transport projects that is under discussion. Alyson Stafford will be able to assist particularly with matters concerning the infrastructure investment board, which she chairs, and the cross-Government accounting work and reporting. We will of course be happy to provide any further information that the committee may require subsequently to the meeting.
Thank you, Sir Peter. I think that this is the first time that you have been before the committee, and I trust that there will be many more opportunities for us to hear from you in the coming months. Our first question is from Colin Keir.
With reference to the £500 million shortfall that was mentioned, I want to ask about the procedures and reporting practices that various Governments have used over the years. Has there been a misunderstanding of past and current practice, or has there been a change in procedures that has made people think that there is a difference and that there is a £500 million shortfall?
I am not sure that I have the answer to that question. We did not recognise the use of the word “shortfall”. My point to the committee is that both sets of numbers are in essence valid and accurate, but they refer to different things. It is not a shortfall.
I just want to find out whether there has been any change that might have confused those who made the claims.
Yes. The cabinet secretary introduced the cap in 2011 and, as the Auditor General points out, everyone agrees that it is a sensible thing to do, to help track spending within prudential limits and to provide a guidepost for forward planning. In answers to parliamentary questions, we have provided information on spending against that cap. As I said, I expect the cabinet secretary to return to that when he sets out his proposals later in the month.
Before we move on to James Dornan, I would like to talk about the 5 per cent cap. I note in your written evidence your response to a line of questioning that was pursued by Tavish Scott on how the north hub’s £700 million spend relates to the 5 per cent limit on the proportion of DEL. You say that it can be used for repayments that are associated with infrastructure investment but, in contrast, you go on to say that the 5 per cent limit relates only to revenue commitments that are associated with the Scottish Government. I find it confusing that the 5 per cent in the north of Scotland appears to be different from the 5 per cent elsewhere.
As I understood the Official Report of your previous discussions on the matter, the point that Tavish Scott was addressing was whether hub projects are wholly included in the 5 per cent cap. The answer, as we heard from the Auditor General this morning, is that the central Government element of the contribution to hub projects is included in the 5 per cent, but hub projects typically include significant contributions—in the case of schools, for example—from local authorities. Interestingly, to go back to your point, that makes the link with financial reporting, because one thing that we should look at in the longer term is whether, in that consolidated financial reporting across local and national Government, it would be useful to have a picture of the totality of central and local government revenue spending against capital projects.
It is not just the totality. We also need consistent reporting across Scotland, as was mentioned earlier by Colin Keir.
I have a short question about transparency in infrastructure projects. How transparent are existing projects compared with the previous PFI and PPP projects?
We have always sought to render for Parliament and the public an accurate photograph of the picture of spending, but I think that the seminal moment was the Auditor General’s report in 2008 and the decisions and work of the committee’s predecessor in 2009, which set the framework for subsequent Scottish Government reporting. As I said, a variety of new financing sources have become available to Government over that period, and the committee is right to want to see a comprehensive and consistent basis for reporting them to Parliament. In our letter to the committee, we have committed to take that approach and to undertake that work with the committee, and we are happy to do that. However, the frame for all of that was set by the 2008 and 2009 work of the committee.
Does that mean that the NPD model, for example, is less opaque than PFI/PPP? Is it easier for us to get information with it and for you to report it?
I do not want to venture a judgment on the types of material that were presented in Scotland on PFI as opposed to NPD, because I have not seen that type of information, but we would be happy to offer a commentary if the committee would find that helpful. Following the 2008 and 2009 work, we have sought to present an evolving and complex landscape as clearly as we can, and we shall continue to do that on the basis of the Auditor General’s helpful report.
You mentioned 2008-09. For clarity, I want to ensure that we are talking about the same thing in asking my question. My understanding is that, in the past few years, there has been an improvement in the amount of information that has been made available to the committee and others and that, in 2008-09, there was the first opportunity for structured reporting to the committee every six months on large infrastructure projects. Will you say a little bit about that and compare that with what happened before?
I think that that is correct. Since 2009, six-monthly reports have gone to the committee on projects of over £50 million. That was part of our response to the committee’s earlier work. From February this year, we have put a fuller list on the web, with information on projects of over £20 million plus all schools and community health projects that are being delivered through the hub initiative. Clearly, that represents an increase in transparency. It covers costs and key delivery milestones. We updated the information yesterday as part of our pipeline and included more information on total capital investment costs along with contract costs where they have been different. Those things represent improvements in the way that you have described.
That is helpful. I will not draw you on the matter, Sir Peter, but one reason for asking the question was to get that on the public record and to show that the Scottish Government has made continual improvement in reporting and transparency. I believe that the reports in the press to which you diplomatically referred in your opening remarks came from a former convener of the committee, Iain Gray, who was the Parliament’s finance minister in 2003. My understanding is that there was less openness and transparency when Mr Gray was the Parliament’s finance minister, and I find that there is a—
I am sorry, Mr Doris, but I ask you to address the report that is in front of us. What Iain Gray said or did not say as finance minister or shadow cabinet secretary is not really important. I would like you to address what we are discussing today and address Sir Peter Housden.
Let me rephrase that, then. Compared with 2003, when Iain Gray was finance minister, and despite Iain Gray’s flawed attacks in the press, does Mr Housden think that transparency and openness have improved in reporting to the committee on large infrastructure projects? More important, where there is more to be done, are you ready to address those issues and improve reporting further?
There are three points in that, which I will take in turn.
I remind members that we should not ask civil servants to comment on or offer judgments or opinions on party-political issues. I thank Sir Peter Housden for remaining on the subject of the Audit Scotland report.
Ms Scanlon, I have a detailed question that is not remotely political, if that is okay.
Yes.
I appreciate your indulgence in allowing me to put that evidence on the record, even though you would rather—I assume—that I had not done so.
That is a fundamental point, because attention will often be focused on the contract prices. The question will be how much the Scottish Government will have to pay following a tendering process for construction works. That guides attention to a particular set of costs, but they will not represent the total cost, however defined. It might be helpful to hear from David Middleton specifically on the transport aspects, as that will bring out the flavour and the reality to which you properly point.
Often, in commenting on existing bodies of transport infrastructure work and future work, the market—the contractors and potential funders, depending on the source of finance—will be interested in the potential contract price for the amount of work that they will be bidding to undertake. In that context, it could confuse the figures if they included whatever cost had been incurred for preparation and land purchase.
That is genuinely helpful, because some commentators have sought to compare whole-project costs with construction costs. They then consider the differential cost and assume that there is an issue. However, I think that it has clearly been pointed out that the costs have to be accounted for differently because of the purchase of land and possible pre-construction costs.
Thank you, Mr Doris, for seeking clarity through that question.
Thank you, Sir Peter, for your earlier remarks attributing some of the good work that is being done to Audit Scotland’s report and the work of this committee—certainly during my earlier years as a committee member. I recall that, at that time, some of us wondered where the reporting was on capital projects and so on. That led to what we now get at the Public Audit Committee.
Yes, I think that that is a very fair and important summary.
We will have an opportunity to ask you about that in more detail under the next item.
Sir Peter, you started by saying that you draw confidence from the Auditor General’s report. In her report, she said that the figures that the Government presented were “inconsistent and incomplete”. Furthermore, she said:
I have three things to say about that. First, the general context, as the Auditor General’s report makes quite clear, is one of well-managed projects that are delivering their intended benefits for Scotland. The Auditor General properly points out, as the committee has done, that there are real advantages in having a consistent set of data available in order to scrutinise work. We have acknowledged that and said that the evolution of reporting from 2008-09, which is taking place across a landscape of gathering complexity, is not at a finish point, so we would like to work with the committee to ensure that it has the data that it needs.
Do you agree with the Auditor General’s main point, which is that the Parliament should be made aware of the total cost of the projects, not just the construction cost? In other words, she is saying that there is a difference between the two. Do you agree with that point?
Yes. An important part of the reporting framework that we are moving towards is that such data will be readily available across the range of projects.
Given that the information was not provided to Parliament previously, how do you monitor the difference between the construction cost and the total cost?
Again, I think that it would be helpful for you to hear from David Middleton on the transport aspect.
We are accountable for all our spending and we report in various ways, certainly to the centre of the Scottish Government. When budgets are published, we require budget cover for expenditure on projects such as the Forth replacement crossing and—in the past—the M74 and the M80. That is the gross expenditure that we are incurring in that year on the project as a whole. Where we are preparing for projects in the future and incurring expenditure on land acquisition and site preparation, that will be explicit in our accounts and our budgets.
I have a supplementary question on that issue. Sir Peter, you mentioned that the projects are very well managed and you have been very complimentary, saying that everything that you do is just wonderful. However, I highlight exhibit 8 on page 35 in part 3 of the report, on
Can you remind me of the reference for that?
It is exhibit 8 on page 35 in part 3 of the Audit Scotland report “Scotland’s key transport infrastructure projects”. The title is
Perhaps David Middleton can enlighten us here.
We said that we would take note of the Auditor General’s report, consider it and report on our processes. With regard to the way in which that information is presented, we believe that the Edinburgh to Glasgow improvement programme has already served Scotland well. It is a programme of projects rather than a single project—for example, Cumbernauld electrification is proceeding at present, and Network Rail has the main contract for the main electrification between Edinburgh and Glasgow out to tender. It is, in many ways, an ambitious programme. There are one or two “Partially” ratings and a couple of non-applicable aspects listed. We felt that—
There are quite a few “No” ratings as well.
We felt that we took appropriate account of risk in the project. The Auditor General’s report contains comments about the Borders railway project and the Edinburgh to Glasgow improvements with regard to the updating of business cases et cetera. However, it struck me on reflection that that has a lot to do with their being rail projects, which have a particular financial mechanism wrapped around them that is not just a matter for the Scottish Government through Transport Scotland, but is validated by the Office of Rail Regulation.
Mr Middleton, do you understand why it would raise warning signals for us—as cross-party members of the Public Audit Committee in the Scottish Parliament—and that we would be concerned when we are told that you neither included the capital costs in your business case analysis nor know the life-cycle costs and revenues?
I understand that, and I am sorry if anything that I say gives the contrary message. The table is a very stark presentation. I understand why people like stark presentations, but I think—
That is what we are looking for.
If members were to go through the individual items, there would be more to be said. I do not think that the Auditor General said in the report’s recommendations and key messages that the Edinburgh to Glasgow improvement programme is in trouble or is a project at risk. She recorded accurately that the scope was adjusted by ministerial decision, but she still says that Audit Scotland feels that we are on track to deliver to the amended timescale. The conclusions and recommendations ask us to look at our processes and we will take those recommendations forward.
Thank you. We can only go on the Auditor General’s report; we are tasked to scrutinise the reports. As a lecturer in a previous life, I note that 30 per cent is not a good mark.
To continue from where we were, the Auditor General has revealed a £500 million difference between the construction cost and the total cost of the projects. How were those figures presented to the Parliament for accountability?
My report to the Public Audit Committee on projects that are in the pipeline gave figures that described, essentially, the contract construction costs. Audit Scotland reached the larger figure by including a range of other costs associated with the projects. I would be happy to take the committee through that project by project if it would be helpful. The key point is that both sets of figures are accurate and valid. They are just describing different things.
My point is that it is the job of the Public Audit Committee and the Parliament to hold the Government to account for these figures. You have presented a set of figures that is missing £500 million and I am trying to work out whether that figure has been presented to Parliament in some other shape or form. Can you point to the documents in which the £500 million is published? How can we follow or scrutinise the figures to see whether there has been slippage, whether the projects are on target and so on?
The burden of the proceedings at the committee today, Mr Macintosh, is really to say that Audit Scotland’s recommendation is that a uniform set of costings should be made available to the committee in a more consistent format. As you will have gathered from our letter and our testimony this morning, we endorse that recommendation. It would be possible to identify, for each of the projects concerned, the detailed reporting to Parliament of each of the costs. I am happy to do that after the meeting if it would be helpful.
In your introductory remarks, you suggested that one of your duties is to provide Parliament with helpful and appropriate information. You have provided information on all the major capital projects, but it does not include £500 million of the costs associated with them. I am trying to find out in what helpful and appropriate way you have presented that information to Parliament.
To supplement what Sir Peter said, each of those projects will have been through its own scrutiny. Some have had direct legislative scrutiny in this Parliament, as the Forth replacement crossing had and, going back a bit, the Borders railway had through the Waverley Railway (Scotland) Bill. The sum and substance of the presentation to the Parliament of each individual project is not represented by the permanent secretary’s six-monthly letter. As Sir Peter said, it can be expanded to include all the figures, but it is not, of itself, a request for authority to spend. The authority to spend comes through specific legislation and, ultimately, through the budget.
My question was not implying in any way that there is a lack of authority. It was about accountability to Parliament. As I understand it, the point of giving six-monthly reports to the Public Audit Committee is specifically so that we can monitor the huge sums of public money that are being spent on these projects. The point is that £0.5 billion is not being reported in an accountable manner. As far as I can tell from your answers so far, you do not provide that information to the committee in an accessible manner. Am I right?
The burden of my response and David Middleton’s response was to say that, if you look at the totality of the Parliament’s processes through legislation, through the work of this committee and through specialist committees including the one that deals with transport infrastructure, that information will have been made available. The burden of the discussion today, with which we agree, is about the possibility of a further evolution of the overall reporting framework that would enable this committee to exercise scrutiny in the way that it would like. We agree that that would be a good evolution.
In the Auditor General’s report, a particular piece of information about the Edinburgh to Glasgow improvement programme suggests that the completion date has slipped from 2016 to 2018 or 2019. How would that information have become part of the Parliament’s domain if it had not been for the Auditor General?
Again, David Middleton or Ainslie McLaughlin will be able to help here.
Mr Brown has made repeated statements to the Parliament to clarify the position on EGIP. There have been a number of parliamentary statements and debates on rail over the past 14 or 15 months and members of the Parliament, with their interest in EGIP and other projects, are not slow to make representations to the transport minister. Therefore, we regularly report on the progress of the various projects. Mr Brown has reported on EGIP on a number of occasions and recently he clarified the timetable.
Mr Brown may have made a number of statements, but before the Auditor General told the committee that, instead of being completed by December 2016, it would be completed by March 2019, was that information made available either through Mr Brown or through any other means?
I think that Mr Brown clarified the timings of aspects of EGIP in a debate in May this year. The Auditor General’s report was published towards the end of June.
Did Mr Brown clarify that the completion date had slipped to March 2019?
That date is to do with the full achievement of EGIP with the best achievement of journey times. I think that Mr Brown said that the electrification from Glasgow to Edinburgh would be complete, as intended, by December 2016. As regards the consequent requirement to make improvements to Queen Street station, which is the new factor that was brought into the equation by the changes that were announced in 2012, we cannot start work at Queen Street station too soon. We have the Commonwealth games and other matters to deal with, and the need for full changes to the platforms to allow the longest trains to have the best service pattern means that the full achievement of EGIP as previously envisaged will slip to March 2019. I think that Mr Brown was quite explicit on that in May 2013 and I do not think that the Auditor General’s report, which was published a month later, provided a new slant on it.
Sir Peter, do you agree that the point of the six-monthly reports to the committee is to ensure that the committee and the Parliament are aware on an on-going basis of how much the projects are costing and exactly when they will finish? The point is to monitor the projects, so do you agree that all the information should be not only available but flagged up and that it is your duty not just to be helpful and appropriate but to highlight the issues?
The account of EGIP illustrates the complexity of such projects across the board. Building on the framework that the committee established, we have sought to provide helpful information in consistent formats. However, we need to underpin that—as I believe that we have—by ensuring that, whenever we publish information about projects, we are clear about the basis on which the information is calculated. That provides transparency.
We will come back to that under the next agenda item.
I remind colleagues where we are and where we came from. As Sir Peter Housden remarked, before 2008, we had no reporting like this—nothing. We did not know how capital projects or programmes were functioning. I am not aware of there having been any reporting to any committee—not even to the Finance Committee. We have come a considerable distance since 2008-09. Perhaps members could reflect on why such information sharing was not normal practice from the Parliament’s establishment. That point must be made.
Yes, but some elements are not applicable.
I know. I am saying that, when such tables are provided, what I described happens. The more important point is that Sir Peter Housden and David Middleton have said that they wish to include the kind of issues that Audit Scotland has reported on with regard to the business case and the data so that we get the broadest and biggest picture, which will allow us to scrutinise everything satisfactorily. That commitment has been made, and I appreciate that.
Thank you for that. To be fair, the table was produced by the Auditor General, not Sir Peter Housden, and it was designed to examine the projects and mark them against good practice.
We are getting to the nitty-gritty of how we can constructively take forward greater scrutiny and better reporting. That is where we should be as a committee—always trying to improve.
That point is important. The Public Audit Committee’s work sits atop the work of specialist committees, and understanding that division of labour to enable committees to do their work is an important parameter for the future.
For clarification, at what point in a project’s lifespan is the project included in the 5 per cent cap? Given that projects can change as they move forward—for example, when the contract is signed, its value might be different from that when the project was first included in the budget given to Parliament—at what trigger points is the value adjusted within the 5 per cent cap?
Alyson Stafford will be able to assist.
On the 5 per cent cap, all contracts that have reached financial close and have been agreed to will be part of the core costs that we track. As for additions beyond that, clearly the budget announcement of a £2.5 billion pipeline of projects a few years back set out a future commitment. We work with the people who are leading those projects to get the best estimates of costs and of when the contracts will reach financial close. Therefore, we have an indicative estimate of where and in which financial years the costs will fall, based on the progress of the NPD projects.
To be clear, do contracts drop into the 5 per cent cap when they are signed?
Contracts that have been signed are already counted, so we have a lot of history on contracts that have been in place over a number of years. They are part of our calculation. Over and above that, we provide ministers with estimated costs of prospective contracts that will go through procurement or the early planning phases and of the year in which those costs might fall. We add those estimated costs to the baseline of known costs and measure that against the 5 per cent cap that has been set.
That is understood. I asked whether there are trigger points at which you update or adjust the estimates. Is that an on-going thing, or does that happen only at certain points in a contract’s life cycle?
For our internal management, the main trigger points that we use are what we describe as fiscal events, which mainly relate to the UK budget phases. Usually, there is a budget around March and there is an autumn statement. Those fiscal events are material because the cap is based on a percentage of our actual allocation, so our forward estimates of that allocation are obviously relevant, in addition to the forward estimates of the costs that are set against projects. We get the best snapshot broadly at six or seven-month intervals, depending on those fiscal events.
If a Government project was going over budget—of course, Government projects never go over, but let us talk theoretically—when would you capture that?
If the project has completed its contracted phase, it will be included as an actual figure. If the project is part of the £2.5 billion pipeline of NPD projects that was announced, we will build in estimates based on the £2.5 billion commitment that was outlined.
So there is a rolling update.
There is a rolling update on a six-monthly basis, which seems to be the best interval. We do not look at such matters every week; we tend to work on them on a six-monthly basis.
So, every six months, you review the outstanding projects to see whether they are still on schedule and whether there are overruns or other commitments that might affect the 5 per cent cap.
Largely in terms of the procurement and contracting arrangements, yes.
I will raise two questions. The first follows from what Colin Beattie asked about local government spending; of course, there are significant projects in local government and in the NHS. How closely do you work with local government to offer advice and support on major capital projects?
Alyson Stafford might be able to help, because the hub development is central to that.
Local authorities have their own capital allocations and their own means to raise money. They have their own structures and processes for that.
I appreciate that.
The interface with the items that we are discussing is through the hub project. There is oversight through a hub board, and hub regions have been established. Local government also has access to information through construction procurement advice and the Scottish Futures Trust; that is how advisory facilities are made available.
So there is quite close co-ordination between local government and national Government on major capital projects.
That depends on the scheme. For example, because there is a national programme for schools and a national programme board to oversee those projects, there is greater visibility and interaction between central Government and local government, as they have a shared interest in delivering that programme.
I appreciate that, but the committee’s role is to look at value for taxpayers’ money. We are not allowed to hold up national newspapers in Parliament, or we will be reprimanded by the Presiding Officer, but I picked up my copy of The Inverness Courier this morning and read that the Inverness bypass building costs are rocketing by £270,000 a month. As a taxpayer in Inverness, I know that that does not exactly lead to trust and confidence in our financial reporting and support.
I agree with your observation. You might wish to explore the subject further with the Auditor General, from the point of view of the Accounts Commission’s findings on oversight of local government.
We are due to finish at 11.45 and we are almost on time, so I shall come to my final question. Sir Peter, I will ask you about your response to the committee. Like other members, I read annexes A and B to paper 5. As this might be my one and only opportunity to chair a committee, I shall take full advantage of my remaining two minutes.
This morning’s conversation has been helpful for us in understanding a broad range of perspectives from the Parliament. We found the Audit Scotland report wide ranging; it covered a significant number of issues that we need to reflect on in the light of your comments. In some ways, we also need to bring together the day-to-day realities of delivering the projects, with their accounting, reporting and evaluation, which David Middleton and Ainslie McLaughlin gave a flavour of this morning.
I would like to think that, in the future, we could have a better partnership and better co-ordination. I would respect you much more if you did not respond in the tone that I described.
“Developing financial reporting in Scotland” and Evaluation in the Public Sector
Agenda item 5 is on the section 23 report “Developing financial reporting in Scotland” and on evaluation in the public sector. We are delighted to have Sir Peter Housden and Alyson Stafford still with us. I invite Sir Peter Housden to make a brief opening statement.
I will be very brief. Our view of the Auditor General’s report is that it is both timely and helpful. It contains a good set of questions to be discussing currently. We think that, in Scotland, we start from a good place on the issue, because the Government’s accounting processes accord with best practice and international standards, so there is a firm foundation. The UK Government’s move over a number of years to whole of government accounts is an important development on which the Parliament and Government need to reflect in order to establish an appropriate path for Scotland. As the deputy convener said earlier, changes are already under way that are associated with the Scotland Act 2012 and its implementation, and those raise questions about reporting.
Thank you, Sir Peter—that was helpful. I invite questions from members.
When the Auditor General gave evidence, I raised with her the question of quality of data collection, and she said that, in relation to financial reporting by the Government, there does not seem to be an issue with the ability to capture relevant data to enable accurate reporting.
I agree whole-heartedly with the committee in attaching importance to the issue. Colin Beattie has pointed to the fact that there is a whole world beyond financial data; you are also right that there are legacy questions. It is important that, when policy is being developed, we have absolute clarity on the objectives of the policy, how we will know what success is and how it is to be measured.
I must emphasise that this is an audit committee and that, as a result, we work on figures and statistics. If the statistics are inaccurate or inadequate, it makes it very difficult for us to do our job effectively. In some cases, the figures that we have seen are quite equivocal.
I think that that is where our common interests lie. I, too, have a responsibility to get value for money and to deliver the Government’s programme, so I, too, need those tools to do my job effectively. Indeed, we are working with the chief statistician and others in the Scottish Government because we share your concern about consistently improving the quality of data.
I am pleased that you have a concern and that you recognise the issue, but is anything actually happening?
In the current programme of public services reform, the Scottish Government has what in our jargon is called a programme board, which is headed by a senior official who is responsible for delivering that programme. Part of the board’s responsibility is to ensure that the data arrangements that underpin that programme are adequate to the task. Inevitably—as the committee’s work has thrown up—boards often deal with legacy issues of less-than-perfect integration between systems, which I know has been an issue for members in the past, or have other concerns. That is where the responsibility is located, and we are certainly giving priority to that in our work.
I cannot speak for the whole committee, but I fully support Colin Beattie’s point. Inadequate and occasionally inaccurate and inconsistent information has been a source of tremendous frustration for the committee.
I have a couple of questions that lead on from Colin Beattie’s comments, but first of all I want to disassociate myself from the deputy convener’s comments at the end of the previous evidence session, which I thought were inappropriate and undeserved.
The gaps are very specific to particular issues. As I said a moment ago, we have for each major area of responsibility a programme board with a responsible senior official, part of whose responsibility is to ensure that they have the data tools to do their job, including tackling questions of different data sources and points of collection. I know from its early work that that has been a really important issue for the committee, which has wrestled with different data collection practices and frameworks in health boards, and with difficulties in accessing general practitioner data. That is a matter of historical fact and colleagues who are working on those programmes are seeking to ensure that we get the best possible fix on those issues and, importantly, as new policy is being developed, that we have an appropriate data flow that enables us to understand whether the programme is delivering its objectives and which we can share with the committee to enable it to carry out its scrutiny work.
Can we be confident that in a year’s time that flow of information and data will be much more readily available and consistent?
That is certainly our intention. As your work goes forward and as you deal with specific questions, I would want you to be progressively more confident that the legacy issues are being addressed to the extent that they can be addressed, and that new policy has a sound basis. That is an important priority for us.
I have a question about the 5 per cent cap that you might already have answered to a great extent. How do you plan to report the budgeted and actual position against the cap each year?
The cabinet secretary will set that out in his budget document; it will be set out in next week’s budget and I expect that to be the pattern from then on.
So, the issue is in hand.
Yes.
I have a final question. Your report states that
There is a wider landscape to which we must have regard, which can have financial and policy impacts on the Scottish Government’s programme. The UK Government’s financial settlement and policies are major contributors, but not the only ones. We therefore seek to monitor all those issues appropriately and effectively, offering advice to ministers on the implications for the Government in order to enable them to reach decisions and, where they deem it to be appropriate, to introduce new policy or to vary arrangements. Those are the issues on which scrutiny by the committee is available.
Okay. Thank you very much.
I return to the subject of the 5 per cent rule—or limit, or whatever. You suggest that the cabinet secretary will give us more information on it in the budget. Can you explain what it covers? For example, when the Government pays back through a revenue finance programme does the money come out of only the revenue stream of DEL coming to the Government or does it come out of the capital stream, too?
The payment to support contracts that are revenue financed will come from our resource budget.
Does it come only from your revenue budget or from your capital budget as well?
I am sorry. To use the same language as you, it comes from the revenue resource budget.
I ask that because, as I understand it, the 5 per cent applies to the DEL budget. In other words, it applies to 5 per cent of revenue and capital together, but you then pay it solely out of the revenue budget. So, as a percentage of the revenue budget the figure will be higher than 5 per cent—the percentage will be different. Let us say that the capital accounts for roughly a tenth of the total budget. If you work out the percentage as a percentage of revenue and capital, the figure will be lower than if it were worked out simply as a percentage of the revenue budget.
In terms of the arithmetic, yes—you are absolutely right.
So, that is how it is done.
Yes.
At the moment, the calculation is also done simply on Government revenue—it does not include local government spending. Let us take a school, for example. Let us say that the Government commitment to a PPP project were 50 per cent—it would be 60 per cent for a secondary school, but let us use the figure of 50 per cent. In your revenue, you would count that 50 per cent but the local government commitment would not be included.
That is right. In assessing it against the costs that fall on central Government, it is the central Government cost that is recorded.
So, local government borrowing and local government revenue finance are not included, despite the fact that that revenue comes from central Government. That long-term commitment is not accounted for in the 5 per cent rule.
Your exposition is absolutely right. Local government receives a grant from central Government and it has other income sources, as well.
What about other bodies? Let us take Scottish Water, for example. Would its liabilities—its future borrowing—figure in your 5 per cent rule?
The main relationship between the Scottish Government and Scottish Water is the loans that the Scottish Government gives to Scottish Water. I will use the same example as the Auditor General. When someone takes out a mortgage, they get the benefit of an asset that they can use, but they must pay the financing and other costs related to that over a period of time. That is the interaction that we are talking about. It is revenue-financed investment. For example, it is the non-profit-distributing models or whatever supporting schools, road transport or the college investment that is taking place through contracts that have been signed recently. It will also include the areas within transport that are on the regulated asset base. That is where an asset is being provided—for example, by Network Rail—and the financing of that must come out of our annual costs over a period of time. Depending on the contract, that could be 20 or 25 years.
So, Scottish Water loans would be treated separately, but the rail asset base would be included and the funding for any borrowing against the rail asset base would be included as part of revenue financing.
Where there are revenue costs that the Government must pay each year for the benefit of an asset that is being provided through a contract arrangement with another party, those costs would be included.
Let us take, for example, the Borders railway and the EGIP programme, which have changed from being privately financed to being borrowed for against the rail asset base. Do you count both for the 5 per cent rule for revenue finance?
Yes.
Both are counted.
Yes.
Local government and Scottish Water are not included, but other borrowing is included. Are there other major projects that I have missed that would be included for the 5 per cent rule?
It is about the financing arrangements that we have. Anything that comes under NPD-type contracts is included, as well as some historical contracts. Anything that was built under PPP or PFI arrangements, depending on which contract format was used, and requires the Government to meet revenue resource costs each year, is captured. We include both the legacy contracts and the new ones, along with the estimates of what we will take on in the future, based on the commitments that ministers have made.
I am anxious to get this right. Local authorities can sign their own contracts if they want to, although they tend to sign them in conjunction with the Government. However, rail is operating as an arm of Government. It is not operating independently; it is borrowing on Government revenue, not its own. Is that correct?
Network Rail will have its own financing arrangements to enable it to make capital investments in the rail network in Scotland. The key thing for the 5 per cent cap is that we recognise that there will be costs for the Government to pay over a number of years for the benefit of that asset being provided by Network Rail. Those costs are calculated and added in. That links in to the Auditor General’s comments. This is one of the provisions for which it is within the gift of the Government to ensure that the future costs of such commitments are taken into account and managed well within the current framework of our finances, bearing in mind that the commitments stretch for well over 20 years, in most cases.
Indeed. That is precisely the point that I am trying to get at. I am trying to establish clarity and transparency.
There is a distinction between the scope of our constitutional landscape and the statutory arrangements that are currently in place for the Scottish Government. This good measure ensures that there is an appropriate financial management arrangement around the use of revenue finance to boost capital, which is obviously being pushed because, in the economic circumstances, infrastructure investment is seen as something that will help economic growth.
Indeed. On the same point, exhibit 10 on page 20 of the Auditor General’s report on financial reporting presents quite a stark and revealing picture of the rise in charges for private finance under the current Government.
I do not tend to work on the basis of hazarding guesses, you will be pleased to know—
Yes, exactly.
Regarding exhibit 10, I would highlight local government as one area that functions in the way that we have just rehearsed. The costs that are shared with local government around the schools programme, for example, are shown in the graph for local and central Government. With regard to the 5 per cent cap, it is the central Government cost that we take into account.
So, in other words, if the graph was to include local government finance, we may be within the 5 per cent central funding cap, but we would be well in excess of 5 per cent if we added in all those additional borrowing commitments.
We would not necessarily be comparing on a like-for-like basis, though. We are dealing here with the funding that is available to central Government and comparing with that the cost that central Government actually has to face. That is around our present regime, with its particular construction based on Parliament authorising expenditure and overseeing the expenditure of central Government against the allocation that it is given.
There are two different issues. One is being able to monitor and authorise that on an individual basis, and the second is being transparent about the bigger picture and the long-term liabilities. As the Auditor General said earlier, if there are other costs that are coming our way, that has a bearing on our ability to assess affordability over the long term and on our decisions about borrowing.
Can I just check that you are referring to paragraph 102?
It is at paragraph 102, on page 42 of the transport report.
Paragraph 102 refers to those projects that are revenue financed. Linking in with what we said earlier, when those contracts reach financial close and are signed, and all the commercially sensitive engagement has therefore been completed, we put them all on our website and set out what the unitary payments are. Those are the future payments that will, in effect, be the Scottish Government’s liability.
Just to check, does that include the contingency sum that you set aside to cover those projects?
I am thinking about the language that we are using here. It is actually measuring. Those publications set out the sums of money that will be required and it is those sums of money that we then take into account against the future budgets that we expect to have as to how far that takes us towards the 5 per cent cap. That is the link between the two.
Can I just say—
I still have two members waiting.
In that case, this will be my final point.
I will just find that in my papers, if I may.
Sorry. That was quite a lot to read out.
Yes.
What is the paragraph reference?
Sorry. It is annex B on page 11 of—oh, sorry. This is a committee paper, is it not?
It is a public paper.
So it is public. It is annex B and is on principles that the Auditor General suggested might be used by the Government in reporting to the Parliament. It is about public reporting. It is on page 11 of the paper after the section headed “Major Capital Projects update – options”.
Perhaps the witnesses do not have a copy of the paper.
Sorry. I now see the section that you are referring to, which refers particularly to
Thank you.
I have a brief question first in relation to exhibit 10—“Estimated annual PPP charges for PPP projects currently in progress, over the period of the contract”—to which Mr Macintosh referred. I know that this is not the witnesses’ exhibit, but I would like to know how the Scottish Government would report that information. I am conscious that someone looking at exhibit 10 could say, “Ah! Since 2007, there’s a dramatic increase and trend there.” However, of course, to get the full information you need to know when projects were started, because peak costs may be a year, 10 years or 15 years from the commencement date.
I will take this one. You are right to pull out that there is quite a lot of lead time before you would ever see something on a graph like exhibit 10, because there is the policy need and the concept of actually saying that a particular project needs to be delivered. There are also all the assessments that happen around the appropriate way of financing the project, such as the value-for-money case, economic assessments and so on.
I want to move on and talk about projections. It would be quite helpful to look at such information and see estimations of how close that would take you to the 5 per cent cap, because such projects are long-term investments. The point of having the cap is to ensure that we do not prevent future Governments from having the flexibility to make their own policy decisions.
You have outlined that there will be a period between the Scottish rate of income tax starting in 2016-17 and the Scottish Government being required to manage any risk to do with variability. It is fair to say that the Cabinet Secretary for Finance, Employment and Sustainable Growth is still to set out the detail behind the question that you raise. What I can say is that the OBR began to produce five-year forecasts for the receipts from the devolved taxes—which are a more immediate issue for us and for which there are not the same transition arrangements—in March 2012. Those are updated and we use that information. That probably gives you a reasonable idea of the sort of lead time that we would want to work to for the Scottish rate of income tax.
That is quite helpful. Perhaps I should have asked my question in another way, as it was less about when that will happen and more about what the reporting procedures will be and whether they will involve the Public Audit Committee or the Finance Committee. Has any thought been given to whether the Public Audit Committee will scrutinise those projections and the realities, or whether that will sit with the Finance Committee? That might not be a question for today. In part 3 of the report, the Auditor General talks about opportunities for the Parliament to go further in the future as it gains more power and responsibility fiscally and in other areas. Do you have any initial thoughts about where such scrutiny would take place?
You are right to highlight the Finance Committee as well as the PAC. There will be particular areas that are specific to the PAC and specific areas for the Finance Committee. There will also be areas where there will be appropriate interaction with both committees.
It does help. I do not think that there has to be complete clarity just now. This is a repetition of what I said earlier about such questions being asked at such an early stage by the Auditor General, which is helpful in establishing how we take the matter forward. As long as these issues are on the radar and the Government is thinking about them, I am content. I am sure that we will return to the matter.
Very much so.
I call Willie Coffey, and we will then wind up the evidence session.
I would like to develop a broader picture. Colleagues have been excellent at picking out some of the detail. Sir Peter, the Auditor General presented a report showing us a landscape of assets and liabilities. Is it too early? When will the Scottish Government form a view about that picture of assets and liabilities, and about how accurate it may be? Is it as complete as the Auditor General presented it to us? You heard some discussion among members about things that were perhaps omitted on either side of the balance sheet. What is your view of that? When will you develop the Scottish Government’s impression of what that landscape will look like, so as to establish the baseline that the committee discussed earlier?
There are some big considerations in play, as you describe. There is an important discussion to have, including with yourselves, about what would be helpful and appropriate for your purposes. Rather in parallel with the major transport infrastructure projects, there is a huge wealth of data that could be brought to the table. Transparency, and being clear about the bases on which different numbers are included and aggregated, will be really important.
I am always mindful of what the public might think of all this work going on, and of how easy or difficult they might find it to access this kind of information. I always like to bear it in mind that, ultimately, we want to report to the public in Scotland about how Scotland is performing and so on.
Hear, hear.
Whatever we do on data gathering, preparation, interpretation, analysis, evaluation and so on, it needs to be intelligible and understandable by the ordinary man and woman in the street. I would like to think that the contribution that we can make to this work would include that important element, so that the public can access this kind of information easily and readily.
That is a very important point. One of the aspects of Scottish government that has attracted international recognition and attention is the national performance framework, which provides a range of important outcomes, which are reported on in a transparent and regular way. The cabinet secretary is committed to the continuous development of all that, and appropriate financial information in parallel is an important component of an overall picture.
I will ask two brief questions. First, what more can be done to explain the potential liabilities, and what financial risks do they present for the Government, from where we are at present? Secondly, has the Scottish Government identified areas of public service delivery where there are currently gaps in the data that it gathers, and what action are you taking to address that?
I will take the first question on liabilities and risk. Our consolidated accounts capture the liabilities and risks that sit at the Scottish Government’s door. As the Auditor General has said, those accounts are prepared on the basis of international financial reporting standards and for the past seven years have received a clean audit opinion. However, the discussion about risk, where it can be best managed and how that plays with our value-for-money duty is an interesting one, and such questions are worthy of further discussion.
Mr Coffey made that point very well. Indeed, the Auditor General has suggested that the Scottish Government consider developing its financial reporting to provide more information on potential liabilities. We look forward to that.
My only other point is that we need to understand the landscape in which we manage those liabilities. The Government receives annual funding and has by statute been largely set up to authorise expenditure. Under the rules that we work within as things stand—and indeed under the auspices of the Scotland Act 2012—we are not in a position to build up any reserves and when we consider future liabilities, we are looking at how they might crystallise in any individual year and how we are placed to meet them. That is quite different between central and local Government and it is useful to bring out that distinction. We need to be really clear, when we explain about liabilities, about the means at which point and in which timeframe we are able to deal with them.
Thank you for that.
The answer is no, convener. I do not believe that there are gaps. The national performance framework, which I have already mentioned, would sit at the top at what seems to me to be a whole raft of strong and excellent practice with regard to data in Scotland. In that respect, I would single out the financial and performance management of the NHS in Scotland, which is widely regarded as excellent.
Thank you.