Auditor issues warning to Scottish Government as value of loans declines ‘significantly’

Auditor issues warning to Scottish Government as value of loans declines 'significantly'

Caroline Gardner

The Scottish Government has substantially reduced the value of £140 million-worth of loans and guarantees to private companies, the Auditor General has revealed.

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

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

The government also reduced an equity stake of £37.4m in engineering firm Bi-Fab to £2m to reflect expected losses.

It has similarly reduced a £39.9m loan to Prestwick Airport to £6.9m and a £21.4m fee for providing financial guarantees to Lochaber Aluminium Smelter to nil to reflect new accounting standards.

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

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

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

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

Finance secretary Derek Mackay said: “For the 14th consecutive year, the Scottish Government’s accounts were given a clean bill of health by Audit Scotland, who highlighted our budget management was effective in managing total spending within the limit set.

“We continue to operate in a challenging financial climate as Brexit, and the increasing risk of a no-deal scenario, remains the biggest threat to our economy and public finances as we take steps to try and mitigate the impact of such an outcome.

“Under the current devolution settlement, the Scottish Government is not permitted to overspend its budget. As a consequence, we have consistently adopted a position of controlling expenditure to ensure we live within the budget caps that apply, while maximising spending on public services. Any money which is underspent in a financial year is carried forward in full into the next year and is invested in public services.”

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