SCOTGOV AUDITOR FINDINGS UNDERMINE CASE FOR ENHANCED HOLYROOD BORROWING
Audit Scotland exposes a Scottish Government with substantial underspends amid warnings about its support to private companies such as Gupta's GFG Alliance & Prestwick airport
One of the key requests of Scottish nationalists findings its way into the Gordon Brown report for constitutional reform was the enhancement of Holyrood borrowing powers. But given the Audit Scotland report on the Scottish Government’s consolidated accounts, it’s less than clear the real issue is a need to increase borrowing powers of Holyrood. What follows is a story of underspends and costly private sector adventurism which speaks more of ministerial incompetence and less of a need for enhanced borrowing
Underspends
Call me a cynic, but I struggle to see how increasing Holyrood borrowing powers to an as yet unspecified level is the constitutional gamechanger some in Scottish Labour seem to think. The central premise lurking behind the proposals is to allow Scottish Governments to better cope with future economic pressures; but this is undercut by the latest Auditor report on the Scottish Government’s books.
For starters, the Audit Scotland report reveals that for the year to March 2022 the “total underspend was £1,988 million”. Put that another way, nearly £2bn in underspend, or 3.88% of the entire budget.
Now naturally underspends are to be expected, the Scottish Government cannot overspend, thus cautionary approaches to spending is to be anticipated. Any administration in Holyrood must adopt a cautious stance, controlling public expenditure to ensure it lives within the budget limits which apply.
Yes, it is true that the nature of the devolutionary settlement means fixed limits, but £2bn out of a £51.2 budget going unspent suggests the problem here is less about the current nature of the constitutional settlement. There is control to ensure spending is kept to the limits, then there is an abundance of caution which leads to underspends which begin to raise questions about competency and failure.
Before anyone starts copying Gordon Brown and reaching for the enhanced borrowing powers playbook, let’s take a moment to interrogate the details of the whopping underspends currently overseen by this SNP administration.
The lion’s share of the nearly 4% of the entire budget unspent rests with education and skills, finance and economy, and net zero, energy and transport. Combined these departmental spheres account for 90% of the £2bn underspend.
Examining education and skills, the Audit Scotland document helpfully notes the “vision” that the incumbent government has “in the Service of Scotland”. The usual progressive talking points are trotted out, sermonising that “we are inclusive” and “we are kind”; which is all good and well. I for one love kindness and inclusivity is usually better to exclusivity, but someone really committed to progress might be less interested in linguistic exercises and more focused on policy.
Right now Scotland has failing educational standards, an attainment gap remains stubbornly large and teachers are ready to strike. Things are so bad the Scottish Government withdrew us from TMSS (Trends in International Mathematics and Science Study) and PIRLS (Progress in International Reading Literacy Study). It has even at various times considered yanking us out of PISA (Programme for International Student Assessment) as well1. Yet despite all of this, there was a budgetary underspent of £806m in Education and skills for the year ending March 31, 20222.
Regarding Finance and the Economy, the total underspend was £536m. Lurking within the overall underspent however is a 59m overspent record under “Ferguson Marine”. The note attached for this overspend reads “Overspend due to impairment of assets under construction following updated valuation of vessels 801 and 802.”3 In direct terms, this is the rolling ferry fiasco.
Looking to net zero, energy and transport the underspend is recorded as £475m. Within this is a £251m underspend recorded under “energy”. What this is referring to is the Scottish Government’s two “very ambitious” energy programmes. The ‘Energy Efficiency Scotland’ and ‘Fuel Poverty capital grant schemes’ both record underspends. This includes warming homes initiatives and energy efficiency.
Further significant underspends in this area were the Heat in Buildings Large Scale Programme's: Low Carbon Infrastructure Transition Programme £40m, Social Housing Net Zero Heat Fund £20m, Public Sector Initiatives £20m and other programmes circa £40m. While blame can definitely be placed at the door of post-pandemic fallout, it nevertheless exposes a failure of government to deliver on programmes of substantial importance.
That this Scottish Government has managed to preside over significant underspends across areas of such vital importance to the Scottish economy inevitably raises questions about competence; and far less about any burning need for further enhanced borrowing powers. Education, economy, finance, energy, transport all yielding 90% of an underspend accounting for nearly 4% of the entire budget. And all of this at a time when Scotland faces seriously challenging economic headwinds ahead of an economic downturn, inflationary pressures and spiralling cost of living. All of this should trigger alarm bells.
Questionable support to private businesses
The story is incomplete if we only examined underspends alone, excuses (some reasonable) can always be made to explain those away. But what cannot be smooth-talked out of the picture are the examples of highly questionable Scottish governments’ financial support to private companies.
Prestwick Airport stands as one of the more egregious examples of staggering incompetence with taxpayer money. Purchased by the Scottish Government in November 2013, the airport has sucked up loan support of £43.4 million up to 31 March 2022. Additionally, there are £7.4m in interest accrued.
So that is nearly £51m spent on Prestwick airport…which is only currently valued “at £11.6 million”4. If this doesn’t qualify as a case-study in blinding levels of incompetence by SNP Ministers, then I struggle to image what would count.
Worse still, the lengthening shadow of Sanjeev Gupta and his GFG Alliance hangs over the Lochaber Aluminium Smelter. I have written extensively about this particular matter before and you can find my Substack articles here and here. A larger piece for Think Scotland about Gupta and the SNP was published and can be read here. So, keeping it brief this time, in December 2016 the Scottish Government issued a 25-year financial guarantee contract to SIMEC Lochaber Hydropower Limited.
One of the (many) troubling issues surrounding this ScotGov-Gupta deal was that it involved ScotGov granting a 25-year guarantee of power purchases by Sanjeev Gupta’s company from another company … which just so happened was owned by Sanjeev’s daddie.
This allowed the now-collapsed finance company Greensill Capital (collapsed with £5bn of debt exposure to Gupta) to transform this contract into £295m of debt, which carried the same credit rating as UK sovereign bonds, ultimately providing the funding for Gupta’s acquisition.
And what does the Auditor General say about this? “The annual exposure to the Scottish Government is between £14 million and £32 million, over the lifetime of the contract.”5 Worse still, the Auditor General Stephen Boyle echoes precisely everything I have written in previous articles about the sheer scale of risk the SNP's Gupta private sector deal making as wrought for taxpayers:
“There remains significant uncertainty regarding the financial stability of the GFG Alliance group which impacts on the likelihood of a call on the guarantee. In March 2021, Greensill Capital (UK) Limited, a major provider of working capital to GFG Alliance, went into administration. This impacts on the Lochaber smelter as it is a subsidiary of Liberty Industries UK Limited, alongside Liberty Steel Limited, under GFG Alliance. The situation is further complicated as the hydro power station that supplies the smelter is owned by GFG Alliance through its other main group of companies, SIMEC”6
Ultimately Scotland is lumbered with an SNP administration with a dangerous penchant for adventurism. The litany of examples of Scottish Government’s direct role in providing financial support to private companies only to end in fiasco is tremendous.
Given the underspends raising questions of ministerial competency and disastrous private sector support gambles this Scottish Government has presided over, I am far from convinced the burning need here is for enhanced Holyrood borrowing powers. Frankly, what all of this seems to suggest is an urgent need for a more competent administration, capable of using the powers already in the hands of our devolved administration. And maybe an administration less eager to fold to the passing demands of billionaire businessmen.
Hepburn (2018, 14 Sept), ‘Scottish government explored leaving Pisa in 2010’, TES Magazine, https://www.tes.com/magazine/archive/scottish-government-explored-leaving-pisa-2010
The Scottish Government Consolidated Accounts for the year ended 31 March 2022, page 115, https://www.gov.scot/binaries/content/documents/govscot/publications/corporate-report/2022/12/scottish-government-consolidated-accounts-year-ended-31-march-2022/documents/scottish-government-consolidated-accounts-year-ended-31-march-2022/scottish-government-consolidated-accounts-year-ended-31-march-2022/govscot%3Adocument/scottish-government-consolidated-accounts-year-ended-31-march-2022.pdf
ibid, page 113
Auditor General: ‘The 2021/22 audit of the Scottish Government Consolidated Accounts ‘, page 12, https://www.audit-scotland.gov.uk/uploads/docs/report/2022/s22_221201_scottish_consolidated.pdf
ibid, page 12
ibid, page 12
A veritable shambles! They really are both incompetent and I believe corrupt. It’s infuriating.
Congratulations.I find the withdrawal from OECD assessments particularly egregious.As Prof LPaterson has remarked this government has created a “data desert”via a vis educational attainment.I note OECD has also published a great deal recently relating to over-all (western economies) low attainment (maths & science) which I presume is what lies behind Sunak’s recent policy statement for rUK.This makes Scot Gov’s £800+m underspend in education really hard to thole.If I may ask you ,d’you happen to know the amount of the total Scot Gov education budget?I’d be grateful to know.