Agenda item 3 is consideration of a paper from the Auditor General for Scotland on the proposal to establish a Scottish futures trust. I invite the Auditor General to speak to his paper.
Thank you very much, convener. Russell Frith, who is director of audit strategy for Audit Scotland, is with us. He is our technical expert on auditing matters.
We would.
Thank you, convener.
We will make a short submission to the Finance Committee. It will say that robust governance arrangements must be put in place, especially if we are to have a vehicle that is slightly distanced from Government. We will invite the Finance Committee to bear in mind the need to consult us on the accounting and auditing implications of the proposal further down the road. It is appropriate that the Audit Committee should be aware of that.
I have a couple of questions about what we have just heard; I am not sure whether Mr Black or Mr Frith should reply. I am interested in where the Scottish futures trust will sit in relation to the public and private sectors. Mr Frith, you suggested that there are clear advantages in placing it in the private sector, although that would have various implications for governance and reporting. Is that a fair summary of your point?
Yes.
You mentioned the Glas Cymru model that is used for Welsh Water. Is that a good fit for the Scottish futures trust, given how it is intended to operate?
I am not sufficiently involved in the detail of the trust's development to say whether the Glas Cymru model could be carried across precisely. However, it is one public participation model that is up and running in the UK.
In your view, would the model work for the Scottish futures trust, given the policy direction that has been set for the trust?
I do not know enough about the detail of it to be able to answer the question.
Is there some irony in the fact that the Welsh Water model is deemed to be good enough for schools and hospitals but not good enough for the water industry in Scotland?
I do not think that the Government has yet formed the view that the Welsh Water model will form the model for the futures trust.
I appreciate that. It was an entirely unfair question to ask someone who is not a politician. However, you will be aware that we have had some lively debate during the past week about the Scottish water industry and it is interesting that, although the Welsh Water model does not appear be on the agenda at the moment, it might be suitable for the futures trust; that was the point that I was trying to make. Thank you for answering my questions.
Will the adoption of the new international regulations have an impact on existing PFI schemes, notwithstanding the impact that it might have on the futures trust?
The Financial Reporting Advisory Board, which advises the Treasury on the precise accounting policies to be adopted, meets tomorrow to consider PFI accounting under international standards. If the proposal in the Treasury paper is adopted, the answer is yes, the way in which existing projects are accounted for will change and they will come on to the balance sheet.
Will that impact on all the Scottish projects as well?
Yes, it will.
I have a couple of questions on timescales. The proposals are still at the outline stage and there is still a development process to go through. There are issues around the funding that is available for infrastructure projects, particularly schools. Can any indication be given of when we could expect the Scottish futures trust to start releasing money for such projects?
We are not really in a position to answer that. It is a Government issue.
That is really a question for politicians.
Perhaps I could ask a linked question to which Audit Scotland might be able to respond. As a comparison, how long did it take for PFI to become a workable model? That might give me an idea of the timescale.
It is quite a long time ago. Negotiation of the early projects probably took two to three years, but the model changed as people learned from the experience of the first few projects.
That is helpful.
Paragraph 9.2 of the consultation paper states:
Bonds are slightly more complex, in that for them to work effectively means relying on tax changes that are in the gift of Westminster. The underlying idea is that if we package together a number of individual projects and put a single, larger package of financing out to the market, we ought to be able to obtain some economies of scale in the interest rate obtained and, perhaps particularly, in the fees involved in negotiating the deals.
They could be packaged together for a PFI project, could they not? We could achieve economies of scale by having all PFI projects financed by a single institution.
That might be possible. I am not aware that it has been tried so far.
It just seems to me to be like making wine out of water if we are able to get cheaper financial rates just because something is called the Scottish futures trust. If it can be done, why has no one else thought of it?
If I may say so, convener, I acknowledge that that is a reasonable question to put to us, but it is very close to policy, and therefore an appropriate issue for the Finance Committee to pursue, as I am sure it will.
I suspect that that is something that the Finance Committee will consider. The point that you made earlier was that the proposal will have significant implications for auditing practice and procedures. We will need to consider how we engage properly with the process at that point, while the Finance Committee looks at the broader policy implications.
Would it be proper for the Auditor General to consider what the costs of administering a Scottish futures trust might be?
If the Scottish futures trust were to come to fruition, once it was in operation, the governance arrangements could be subject to audit, depending on the policy framework in which the trust was sitting.
Thanks for that clarification. We await with interest the eventual outcome.
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Section 22 Report