No clear framework
Taxpayers take £135m hit after supporting struggling businesses
Ferguson Marine received £45m in loans
The Scottish Government has lost an estimated £135m trying to prop up ailing industries after a series of investments and loans were virtually wiped out or sharply reduced in value.
Ministers poured £157m into into four struggling companies but has been forced to make significant writedowns.
They include two loans totalling £45m to Ferguson Marine Engineering and a £21.4m fee for providing guarantees to the Lochaber aluminium smelter. Both have been revalued as worthless, according to a newly-published report from Audit Scotland.
The valuation of loans and guarantees to troubled Burntisland Fabrications and loss-making Prestwick Airport, also declined significantly during 2018/19.
An equity stake of £37.4m to Bi-Fab, part of an overall package of £51m, has been reduced in value to £2m, while a £39.9m loan to Prestwick Airport is now valued at just £6.9m.
The Scottish Government has not developed a clear framework to outline its overall approach to financial interventions in private companies– Auditor General
The airport is up for sale and no date has been set to complete it, although Transport Scotland anticipates it may be achievable by the end of the financial year. The Government plans to monitor options for when it will sell its shareholding in BiFab.
The auditor general notes that the Scottish Government “has not developed a clear framework to outline its overall approach to financial interventions in private companies” outlining its approach to financial interventions in private companies covering financial capacity, risk tolerance and expected outcomes.
The Government is also facing a potential £190m fine from the European Commission for failing to properly manage two European Structural and Investment Funds for the period 2014 to 2020. One of the programmes, the European Social Fund, aims to help people improve their lives by learning new skills and finding better jobs.
In February, the EC notified the Scottish Government that the ESF had been placed in ‘pre-suspension’ as a result of serious deficiencies in the management and control system following issues identified by their auditors. The issues mirror similar difficulties with the 2007-13 ESF programme. EC payments are stopped until it considers such risks have been removed.
The Scottish Government has until November to resolve the issues to enable the pre-suspension to be lifted and payments made. The Scottish Government would face a maximum penalty of 25% of the whole programme – about £190m– if the EC places the programme in full suspension, although the auditor general notes that the possibility of such a significant amount is remote. Any penalty would be subject to negotiation between the Scottish Government and the Commission.
The government’s accounts for the year to the end of March, also published today show that the total net expenditure was £36.14 billion, £778m under budget.
Under the terms of the Scotland Act 2016, Scottish ministers’ can borrow up to £3bn for capital purposes, with an annual borrowing limit of 15% (£450 million) of the overall borrowing cap. In 2018/19, the Scottish Government borrowed £250m compared to the £450m outlined by Scottish ministers as part of the 2018/19 Scottish budget.
We have consistently adopted a position of controlling expenditure to ensure we live within the budget caps– Derek Mackay
Repayments of the loan, from the National Loans Fund, are to be made over the next ten years in line with timescales outlined in the Fiscal Framework.
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.”