Transport Scotland Annual Report and Accounts 2010/11
ANNUAL ACCOUNTS
MANAGEMENT COMMENTARY
Financial Statements
The financial statements cover the period from 1 April 2010 to 31 March 2011. They have been prepared in accordance with the Accounts Direction given by the Scottish Ministers in pursuance of the Public Finance and Accountability (Scotland) Act 2000, and in accordance with The HM Treasury 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.
The Accountable Officer authorised these financial statements for issue on 15 September 2011.
Transport Scotland's Annual Review and Accounts are published on the agency website 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
The road network is valued on the basis of current replacement cost, adjusted to reflect the current condition of the road component and the depreciation of structures and communications assets. 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 individual components of the network asset and indices to revalue these 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 required to be made relating to the estimated cost of land acquisition and compensation claims that are based on a variety of data sources and experience. - Private Finance Initiatives (PFI) - the balance of risk
Transport Scotland has two PFI agreements (M77 & M74/M6) for the provision of the related road infrastructure and its ongoing maintenance. These contracts are for fixed terms, typically thirty years. The overall control of the related assets has been judged to lie with Transport Scotland, so these are accounted for on Transport Scotland's Statement of Financial Position (SFP) to reflect this, according to the relevant IFRS Accounting guidance (IFRIC 12).
Rail infrastructure in Scotland
Transport Scotland has responsibility for specifying and funding rail infrastructure in Scotland. First ScotRail has been operating rail services under the Franchise Agreement since August 2004 and has been exceeding contract performance benchmarks. In April 2008, Scottish Ministers activated a provision under the terms of the original agreement to extend the First Scotrail Franchise by 3 years. In extending the contract to 2014, Scottish Government is providing continuity for the ongoing delivery and improvement of rail services in Scotland.
In October 2008 the Office of the Rail Regulator (ORR) published its final determination for the control period 1 April 2009 to 31 March 2014. This sets out what Network Rail will need to deliver and the funding that it will receive for doing this.
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 assets in question are accounted for on Network Rail's balance sheet/SFP.
Edinburgh Trams
Transport Scotland has paid grant to the City of Edinburgh Council in respect of work done on the Edinburgh Trams project in accordance with the grant agreement. To the end of 2010-11, Transport Scotland has paid £388million of the agreed funding. Going forward, Transport Scotland will provide expertise to the City of Edinburgh Council (who will retain contractual responsibility for the project) to assist them to bring the project to a satisfactory conclusion.
Funding
Resources to fund Transport Scotland's day-to-day costs and capital investment programme are allocated in accordance with the Budget (Scotland) Act 2010 which authorised both the Scottish Government's and Transport Scotland's spending plans for the financial year 2010/11.
Private sector funding under PFI and Public Private Partnership arrangements is also considered for major infrastructure schemes. The choice between public and private funding is made on an assessment of value for money on a scheme-by-scheme basis.
Rail major projects may also be funded by borrowing through Network Rail. This is a recognised method for funding rail projects and it will play an increasing part in the rail programme for Transport Scotland during the contractual period ending in 2014.
Financial performance and use of resources
Transport Scotland was allocated resources by the Scottish Ministers for 2010-11 of £1,889million. Of this, £1,823million was funded from the Scottish Government Departmental Expenditure Limit (DEL); £27million represents funding for Annually Managed Expenditure (AME) charged in respect of new provisions created relating to land compensation and damage claims in respect of the road network with the remaining £38million representing funding for expenditure charged outwith DEL in respect of PFI/PPP projects. The final outturn for the year against the individual budget areas is shown below. These budgets formed part of the overall budget of the Scottish Government Finance and Sustainable Growth portfolio. The outturn against DEL represents a variance of less than 3%. The overall underspend of £62,247k represents less than 3% of the overall budget.
| Transport Scotland 2010/11 | Actual £000 | Budget £000 | Variance £000 |
|---|---|---|---|
| Resource - Operating Costs | 962,307 | 973,154 | (10,847) |
| Resource - Investment | 498,767 | 508,290 | (9,523) |
| Non-Cash | 44,232 | 91,500 | (47,268) |
| Capital | 258,185 | 250,404 | 7,781 |
| DEL total | 1,763,491 | 1,823,348 | (59,857) |
| AME | 26,570 | 27,000 | (430) |
| Expenditure on PFI schemes (ODEL) | 36,368 | 38,328 | (1,960) |
| Total | 1,826,429 | 1,888,676 | (62,247) |
Spending is categorised as either capital or resource with separate budgetary cover for each. Resource is further sub-divided into investment in infrastructure (which although it may be capital in nature cannot be accounted for as such within Transport Scotland's accounts) and resource for consumption (operating costs).
Transport Scotland has a significant 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 2010-11, 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.
The total asset value of Transport Scotland is £16 billion, almost all of which relates to the trunk road network asset.
Future Spending Plans
The Scottish Budget Spending Review 2010 (SR2010) set annual spending plans from 1 April 2011 to 31 March 2012. The plans are intended to inform a one year budget for Scotland and will be followed by a longer term Spending Review over the 3 year period from 2012-13 to 2014-15. The budget for the year 2011-12 has now been set and current annual spending plans are:
| 2011/12* £million | |
|---|---|
| Resource - Operating Costs | 928.3 |
| Resource - Investment | 471.3 |
| Non-Cash | 80.6 |
| Capital | 294.6 |
| Total | 1774.8 |
| ODEL | 55.2 |
| Total | 1830.0 |
*Source- SR2010
Financial Instruments
In relation to financial instruments, an indication of the financial risk management objectives and policies and exposure to price, credit, liquidity and cash flow risks is provided in note 18 to the accounts. This information is not considered material for Transport Scotland.
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 and also in line with the Scottish Government 10 day payment policy. In 2010-11 Transport Scotland settled an average of 85% of invoices within this timescale.
The aggregate amount owed to trade creditors at the year end as a proportion of the aggregate amount invoiced by suppliers during the year, represented 1.8 days in proportion to the total number of days in 2010-11 and 2.1 days in proportion to the total number of days in 2009-10.
Employment of Disabled Persons
Transport Scotland is committed to equal opportunity in employment and advancement and recognises commitment and demonstrates a positive attitude to disabled staff. Advice and training is offered to staff and managers to enable understanding about issues related to disability and to assist staff to balance work and their disability. In addition, we are committed to a range of employment practices, including:
- developing staff through the performance appraisal system by considering individual needs;
- retaining staff who have become disabled, e.g. through supplying equipment or offering different work patterns;
- developing disability awareness throughout the organisation by reviewing progress and planning areas of improvement;
- changing attitudes by ensuring staff are sensitive to the issue of disability and our legal and other responsibilities.
Employee Involvement
Transport Scotland places great importance on ensuring employees feel valued and recognised whilst having the opportunity to contribute fully towards success in their area and across the organisation as a whole. This is undertaken in a variety of ways including subject specific working groups, manager forums, team meetings and employee engagement surveys which are carried out annually.
Employees and Social and Community Issues
Transport Scotland staff use the Scottish Government 'Skills for Success' framework which is a skills based approach to learning, development and career planning. All of which is designed to help staff manage their skills and career across the wider organisation.
In procuring major contracts, Transport Scotland is at the forefront of delivering community benefits beyond those of the normal contract requirements. An example of this is providing targeted training and employment opportunities for young people and the long-term unemployed where 15 young people participated in the Modern Apprenticeship scheme on the M74 Completion project and 2 site-based training places were provided on the A9 Crubenmore Dual Carriageway Extension contract.
Environmental Matters
Transport makes a key contribution to Scotland's well being: economically, environmentally and socially. An efficient transport system is essential for enhancing productivity and delivering faster, more sustainable growth in a low carbon economy. Ongoing investment in networks connects regions and individuals to economic opportunities, creating a more cohesive Scotland with increased social equity.
Transport Scotland invests almost all of its allocated resources in maintaining and improving Scotland's strategic transport networks, supporting over 25% of civil engineering contracts in Scotland. Investment across road and rail and in operation, maintenance and specific infrastructure construction supports around 11,000 jobs. Transport Scotland is also seeking to embed sustainability in every aspect of construction works and is committed to recycling materials and works with contractors to identify opportunities to minimise materials imported/exported from construction sites.
Concessionary Travel Scheme
Within the 2010-11 revised Concessionary Travel budget of £180million, the statutory budget limit for the Scotland Wide Free Bus Concessionary Travel Scheme for Older and Disabled People was set at £174.2million. As bus operator claims within the free scheme in 2010-11 totalled £174.7million bus operator payments for the final 2010-11 claim period were capped by £0.5million pro rata over all operators.
Transport Scotland and Transport Directorate Merger
As part of its Shaping Up Review, the Scottish Government reviewed the organisation of transport related areas. The findings of this review, published in April 2010, announced the merger of Transport Scotland with the Scottish Government Transport Directorate. This resulted in a new, single transport agency covering all of the Scottish Government's transport responsibilities. The merger took place on 1 August 2010 and Transport Scotland now includes two new directorates: Aviation, Maritime, Freight & Canals and Transport Policy. The responsibility for payment of grants to bus operators was transferred to a directorate of the former Transport Scotland Agency which was renamed as Trunk Roads and Bus Operations.
The merger resulted in budgets and expenditure being absorbed into the one new body and financial reporting was reviewed accordingly. Transport Scotland is required to apply merger accounting which requires the results of the two merged entities to be combined for the whole of the reporting year and the prior year comparatives similarly restated. Annual expenditure on areas formerly dealt with by the Transport Directorate in 2010-11 was £296million.
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 2010-11 assurance letters on internal control, which all directors in post as at 31 March 2011 completed, also confirmed that no conflict of interest arose in the exercise of their duties.
Appointed Auditors
The accounts for 2010-11 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 £198,000 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 acts 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.
Future Developments
In 2008 Transport Scotland undertook a Strategic Transport Projects Review to set out investment priorities for the next 20 years. This is targeted at facilitating better movement of people and goods to increase wealth and enable more people to share fairly in that wealth. It identified four priority projects: The Forth Replacement Crossing, the Edinburgh to Glasgow Rail Improvements Programme, Highland Main Line and Aberdeen to Inverness Rail Line improvement and 25 other smaller projects. In addition Transport Scotland will complete the M80 Stepps to Haggs and continue to progress with the Borders Railway Project. Transport Scotland will also tender for the contract for the provision of ferry services to the Northern Isles from July 2012 and procure replacement aircraft for the provision of air services to Barra. Scottish Ministers have also committed to the Aberdeen Western Peripheral Road and the M8 Improvement projects.
The Scottish Government is undertaking a 3 year spending review detailing its spending plans from 2012-13 to 2014-15. This will be in light of the reduced funding settlement from the UK Government and commitments made by Scottish Ministers to maintain funding for the National Health Service and freeze council tax. This is due to be completed in September 2011.
Risks and Uncertainties
The principal risks and uncertainties facing Transport Scotland relate to the major contracts that it has entered into in relation to the provision of rail, ferry, bus and air services, the maintenance of the road, rail and highland and island air networks and the procurement of major infrastructure such as the Forth Replacement Crossing. The inherent risks relate to performance by contractors which can also be affected by outside factors such as adverse weather. Transport Scotland has focussed its efforts in particular on improving winter resilience on the trunk road network. Transport Scotland manages the related financial risks on these contracts by providing financial support, including monthly reporting to budget holders, directors and the Scottish Government.
Significant events since the end of the financial year
During the period from April to July 2011 Transport Scotland, on behalf of Scottish Ministers, awarded a suite of contracts that together form the programme for the Forth Replacement Crossing. The Principal Contract was awarded to the Forth Crossing Bridge Constructors (FCBC) consortium, comprising Dragados, Hochtief, American Bridge International and Morrison Construction and construction is expected to start on site during the summer. The programme is expected to cost approximately £1.5billion and be delivered in 2016 and will replace the current Forth Road Bridge as the main crossing for cross-Forth traffic.
David Middleton
Chief Executive
14 September 2011