Management Commentary
Management Commentary
Financial Statements
The financial statements cover the period from 1 April 2011 to 31 March 2012. 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 9 August 2012.
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 (WS Atkins) 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 Public Partnerships (PPP) - the balance of control
Transport Scotland has three Private Public Partnerships (PPP) agreements (M77, M74/M6 and the M80 Stepps to Haggs) 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/Statement of Financial Position.
Edinburgh Trams
Transport Scotland has paid grant to the City of Edinburgh Council as agreed in respect of work done on the Edinburgh Trams project in accordance with the grant agreement. To the end of 2011-12, Transport Scotland has paid £450 million 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 were allocated in accordance with the Scottish Government Spending Plans and Draft Budget 2011-12 which authorised both the Scottish Government's and Transport Scotland's spending plans for the financial year 2011-12.
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, within the Spending Review 2010, of £2,091 million for 2011-12. Of this, £1,768 million was funded from the Scottish Government Departmental Expenditure Limit (DEL); (£7 million) represents Annually Managed Expenditure (AME) in respect of provisions released relating to land compensation and damage claims in respect of the road network; with the remaining £330 million 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 Infrastructure and Capital Investment portfolio. The outturn against DEL represents a variance of 2%. The overall underspend of £35.681 million represents approximately 2% of the overall budget.
| Transport Scotland 2011-12 | Actual £million |
Budget £million |
Variance £million |
|---|---|---|---|
| Resource - Operating Costs | 935.293 | 915.168 | 20.125 |
| Resource - Investment | 506.585 | 475.300 | 31.285 |
| Non-Cash | 63.320 | 80.600 | (17.280) |
| Capital | 224.608 | 296.700 | (72.092) |
| DEL total |
1,729.806 | 1,767.768 | (37.962) |
| AME | (4.993) | (6.850) | 1.857 |
| Expenditure on PFI schemes (ODEL) | 330.343 | 329.919 | 0.424 |
| Total | 2,055.156 | 2,090.837 | (35.681) |
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 2011-12, 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. Only 1% of the budget is utilised on the ongoing Agency running costs.
The total asset value of Transport Scotland is £20 billion, almost all of which relates to the trunk road network asset. Additions to the value of the asset in year reflect the completion of the M74, M80, Crubenmore (A9), Parkend (A77) and Fochabers (A96) schemes and the transfer in from Local Authorities in respect of the approach roads to the Forth Road Bridge.
Future Spending Plans
The Scottish Budget Spending Review 2012-13 to 2014-15 (SR 2011), provides detail of how our spending plans over the next three years will help deliver sustainable economic growth. Transport spending lies within the Government's Infrastructure and Capital Investment portfolio. After the announcement of the Spending Review, the Westminster government set out movements in UK spending that generated Barnett consequentials for Scotland. As a result, Transport Scotland received additional capital allocations totalling around £85m across the three spending review years, principally for roads projects such as A75 Dunragit Bypass, A77 Symington to Bogend Toll and A737 Dalry Bypass, but also including £13m for Sustainable and Active travel. The additional budget for the year 2012-13 was £5.2m. These additions are included in the table below for the coming financial year.
| 2012/13* £million |
|
|---|---|
| Resource - Operating Costs | 948.2 |
| Resource - Investment | 440.63 |
| Non-Cash | 89.0 |
| Capital | 340.4 |
| Total | 1818.2 |
| ODEL | 74.5 |
| Total | 1892.7 |
*Source- SR2011
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 2011-12 Transport Scotland settled an average of 88% 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 2011-12 and 2.1 days in proportion to the total number of days in 2010-11.
Employment of Disabled Persons
Transport Scotland follows Civil Service good practice guidance on the employment of disabled people and is a Job Centre Plus Disability Symbol user. As such, Transport Scotland ensures that there is no discrimination on the grounds of disability and that access to employment and career advancement is based solely on merit, competence and suitability for the work.
The average number of disabled employees employed by Transport Scotland over the year to 31 March 2012 was 15 (2010-11: 15).
Staff Relations and Equal Opportunities
Transport Scotland is an equal opportunities employer. Policies are in place to guard against discrimination and to ensure that there is no unfair or illegal discriminatory treatment or any barriers to employment or advancement in Transport Scotland.
Transport Scotland gives a high priority to the development of all its staff. Training, development and learning in Transport Scotland is quality assured through its commitment to the Investor in People (IiP) Scheme as part of the Scottish Government. The latest review of The Scottish Government IiP status was in June 2010. Transport Scotland is committed to a programme of continuous improvement in relation to the Scottish Government implementation of the IiP standard.
The Department for Work and Pensions is responsible for developing, formulating and promulgating equal opportunities guidance for the Civil Service as a whole, but operational responsibility rests with individual Departments. Transport Scotland has access to the Scottish Government Equal Opportunities Officer who is responsible for developing and promulgating equal opportunities and diversity policies.
Transport Scotland recognises that the success of any organisation depends largely on the effective performance and full attendance of all its employees. People are a valued resource, as well as an expensive one. Therefore, as an employer Transport Scotland's Attendance Management procedures are designed to maintain a happy, well-motivated and healthy workforce. The procedures are aimed to:
- be supportive and positive;
- promote fair and consistent treatment for everyone;
- encourage, assist and make it easy for people to return to and stay in work; and
- explain employees' entitlements and the roles and responsibilities of HR.
In 2011-12 an average of 5.6 working days (2010-11: 5.8) were lost due to sickness absence per staff year for Transport Scotland.
Transport Scotland Equal Opportunities policy is that all staff should be treated equally irrespective of their sex, marital/civil partnership status, age, race, ethnic origin, sexual orientation, disability or religion or belief, work pattern, employment status, gender identity (transgender), caring responsibility or trade union membership. Employment and promotion are solely on merit. Staff who work full time and those who work an alternative pattern are assessed on exactly the same basis.
Transport Scotland follows the Scottish Government Diversity Delivery Plan, published in 2008, which supports the wider Civil Service Diversity Strategy drive to mainstream equality and diversity. This is further supported by our Fairness at Work Policy. This includes changing behaviours and culture to create a fully inclusive Civil Service, confident in its diversity; promoting strong leadership and clear accountability for delivering diversity; attracting, keeping and developing talent from all areas of society; and becoming representative of the society we serve, at all levels.
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.
We have embarked on a programme of education engagement, where staff use their skills and experience of work to help young people in the surrounding area prepare for employment.
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 the benefits to the community being delivered through the Forth Replacement Crossing project. The main contract will provide an average of 112 employment opportunities each year over the six year duration of the contract. This is broken down into 45 vocational training positions, 21 professional body training places and 46 positions for the long term unemployed. The contract also provides scope to maximise the number of Modern Apprenticeship opportunities.
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. Transport Scotland plans and performance in terms of sustainability throughout the year are included in the Annual Report section.
Concessionary Travel Scheme
Within the 2011-12 Concessionary Travel budget of £185 million, the statutory budget limit for the Scotland Wide Free Bus Concessionary Travel Scheme for Older and Disabled People, as negotiated with the Confederation of Passenger Transport, was set at £180 million. As bus operator claims within the free scheme in 2011-12 totalled approximately £190 million, bus operator payments for the final 2011-12 claim period were capped by approximately £10 million pro rata over all operators.
Directors and Non Executive / External Members Interests
Directors and Non Executive / External 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 2011-12 assurance letters on internal control, which all directors in post as at 31 March 2012 completed, also confirmed that no conflict of interest arose in the exercise of their duties.
Appointed Auditors
The accounts for 2011-12 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 £188,000 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 4 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 continue to progress with the Borders Railway and the M8 Improvement projects. Transport Scotland will also procure replacement aircraft for the provision of air services to Barra. Scottish Ministers have also committed to the Aberdeen Western Peripheral Road, pending resolution of the current legal challenge. In addition Ministers have announced their intention to complete the dualling of the A9 to Inverness and the A96 between Inverness and Aberdeen.
Forth Replacement Crossing (FRC)
Transport Scotland made an advance payment of £50 million to the FRC contractor in respect of mobilisation and design work required in the early stages of the contract. This is covered by an advance payment bond and the value will reduce when Transport Scotland has paid 50% of the contract price to the contractor in respect of the value of work completed pursuant to the contract. This is expected to happen in April 2014.
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 the Highlands and Islands 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.
Personal data related incidents
There were no personal data related incidents in the year within Transport Scotland.
Significant events since the end of the financial year
During the period from April to July 2012 Transport Scotland, on behalf of Scottish Ministers, awarded the contract for the provision of ferry services to the Northern Isles from July 2012 to Serco Limited. The contract replaces the service previously provided by Northlink Limited over the following six years with a total subsidy amounting to £234 million.
David Middleton
Chief Executive
9 August 2012