MANAGEMENT COMMENTARY
MANAGEMENT COMMENTARY
FINANCIAL STATEMENTS
The financial statements cover the period from 1 April 2007 to 31 March 2008. They have been prepared in accordance with a Direction given by the Scottish Ministers in pursuance of the Public Finance and Accountability (Scotland) Act 2000.
Transport Scotland was created as an executive agency on 1 January 2006. This is effectively the second trading year for Transport Scotland as an agency of the Scottish Government.
The financial statements have been prepared in accordance with Her Majesty’s Treasury’s Financial Reporting Manual (FReM). As Transport Scotland is an executive agency of the Scottish Government, the financial statements are consolidated within the Scottish Government Consolidated Resource Accounts.
Transport Scotland’s annual report and accounts can be found at: www.transportscotland.gov.uk, and the Scottish Government consolidated Resource Accounts at www.scotland.gov.uk.
SIGNIFICANT ACCOUNTING POLICIES
Those areas of Transport Scotland’s financial statements where accounting judgements have significant impact are outlined below:
VALUATION OF THE ROAD NETWORK
To produce this valuation requires the use of assumptions, estimates and professional judgement. The model used to produce the valuation is known as the UK Asset Valuation System (UK-AVS), run by a firm of external consultants (EC Harris LLP) and uses a series of standard costs to value the asset and indices to uplift land and the cost of road construction on an annual basis.
RECOGNITION AND THE VALUATION OF PROVISIONS
Due to the long term nature of Transport Scotland’s road and rail improvement schemes certain assumptions and judgements are made relating to land acquisition and compensation claims.
PRIVATE FINANCE INITIATIVES (PFI) – THE BALANCE OF RISK
Transport Scotland has two PFI agreements (M77 & M74/M6) for the provision of new roads infrastructure and maintenance of this infrastructure. These contracts are for fixed terms, typically thirty years, and the balance of risks and rewards has been judged to lie with the PFI contractor. Correspondingly, these assets are only present on Transport Scotland’s balance sheet to the extent of the capital element included in the unitary charge payment.
RAIL INFRASTRUCTURE IN SCOTLAND
The Railways Act 2005 transferred the responsibility for specifying and funding rail infrastructure in Scotland to the Scottish Ministers from 1 April 2006. This was accompanied by a budget transfer from the Department for Transport (DfT).
Major rail projects, which are capital in nature, are funded by Transport Scotland but as the control of the economic benefits arising from the use of these assets does not ultimately lie with Transport Scotland, the rail capital assets in question sit on Network Rail’s balance sheet and not Transport Scotland’s.
FUNDING
Resources to fund Transport Scotland’s day-to-day costs and capital investment programme are obtained through the Budget (Scotland) Act 2007 which authorised the Scottish Government’s spending plans for the financial year 2007/08, including those of Transport Scotland.
Private sector funding is also available under PFI and Public Private Partnership arrangements for major road and rail capital schemes. The choice between public and private funding is made on an assessment of value for money on a scheme-by-scheme basis.
Transport Scotland is funding City of Edinburgh Council for the delivery of the Tram project. During 2007/08 a payment of £24.8m was made to secure the future price of commodities for this project.
FINANCIAL PERFORMANCE AND USE OF RESOURCES
Transport Scotland was allocated resources by the Scottish Ministers of £2,046m for 2007/08. Of this, £501m represents a notional charge for cost of capital for roads, with the remaining £1,545m representing the Agency’s operating budget. The final outturn for the year was within budget limits (0.2% variance).
Transport Scotland |
Actual |
*Budget |
Variance |
|---|---|---|---|
Resource - Operating Costs |
786,927 |
820,499 |
33,572 |
Resource – Investment |
624,262 |
598,321 |
(25,941) |
Capital |
136,376 |
125,800 |
(10,576) |
Sub-total |
1,547,565 |
1,544,620 |
(2,945) |
Cost of Capital (notional) |
480,847 |
501,247 |
20,400 |
Total |
2,028,412 |
2,045,867 |
17,455 |
* Spring Budget Revision figures
Spending is categorised under two headings depending on budgetary source. These are capital and resource, with resource being further sub-divided into net investment in infrastructure and resource for consumption.
Transport Scotland has a significant resource infrastructure investment programme which allocates funding to our major rail and major road projects as well as ongoing maintenance costs in the existing road and rail infrastructure.
Actual expenditure in 2007/08, excluding cost of capital, is analysed below by operational area within Transport Scotland.
Almost all of Transport Scotland’s budget is spent, either directly or indirectly, with private sector companies. Less than 1% of the budget is utilised on the ongoing Agency running costs (contained within administration operating costs).
The total asset value of Transport Scotland is £14.4 billion, almost all of which relates to the trunk road network asset.
FUTURE SPENDING PLANS
The 2007 Comprehensive Spending Review has set annual spending plans from 2008/09 to 2010/11. The plans are intended to give more focus on long-term outcomes for Scotland and will result in no significant changes to the activities or objectives of Transport Scotland over the period. The Scottish Budget Spending Review outcome for Transport Scotland is:
2008/09 |
2009/10 |
2010/11 |
|
|---|---|---|---|
Resource – Operating Costs |
797,000 |
817,700 |
809,300 |
Resource – Investment |
534,800 |
616,000 |
595,800 |
Capital |
108,900 |
184,000 |
242,700 |
Total |
1,440,700 |
1,617,700 |
1,647,800 |
Cost of Capital (notional) |
546,500 |
595,500 |
649,100 |
Total |
1,987,200 |
2,213,200 |
2,296,900 |
Source: SR07 (as amended)
RELATIONSHIP WITH SUPPLIERS
Transport Scotland is committed to prompt payment of bills for goods and services received, and aims to settle all undisputed invoices within contract terms. During 2007/08, 93.9% of undisputed invoices were paid within agreed terms. No interest was incurred under the Late Payment of Commercial Debt (Interest) Act 1998.
CONCESSIONARY FARES SCHEME
The statutory budget limit for the Older & Disabled Persons Concessionary Travel Scheme was set at £163m for the financial year 2007/08. In February 2008 the forecast model for total payments indicated a small over-run and it was necessary to scale down the overall payments to avoid exceeding the statutory limit for this scheme. Transport Scotland advised the bus operators and adjusted the final payments accordingly.
BOARD MEMBERS’ INTERESTS
Board members’ interests are recorded in a "Register of Interests" maintained on the Scottish Government electronic HR system. A copy of this Register is available on request. The 2007/08 assurance letter on internal control, which all directors completed, confirmed that no conflict of interest arose in the exercise of their duties.
The Director of Finance and Corporate Services has both shares and share options in First Group plc due to his previous role as Finance Director of the UK Bus Division within First Group plc. It was therefore necessary to implement additional practices as Transport Scotland and First Group plc have contractual relationships through the ScotRail Franchise and the concessionary travel schemes.
APPOINTED AUDITORS
The accounts for 2007/08 are audited by auditors appointed by the Auditor General for Scotland. Audit Scotland carried out this audit and the notional fee for this service was £175k, which related solely to the provision of the statutory audit service.
FREEDOM OF INFORMATION
The Freedom of Information (Scotland) Act 2002 aims to make information held by public authorities more accessible. The Agency is obligated to act in the spirit of openness, to provide information (unless exempt) within 20 working days, to provide advice and assistance to the applicants, and to proactively publish information under its Publication Scheme.
SIGNIFICANT EVENTS SINCE THE END OF THE FINANCIAL YEAR
To date there have been no significant events since the end of the financial year.
Malcolm Reed CBE
Chief Executive
22 October 2008