Scottish Government consolidated accounts 2016 to 2017

Performance Report

About the Scottish Government

The Scottish Government is the devolved government for Scotland and has a range of responsibilities that include: the economy, education, health, justice, rural affairs, housing, environment, equal opportunities, consumer advocacy and advice, transport and taxation.

Some powers are reserved to the UK Government. These include: immigration, the constitution, foreign policy and defence. Further changes to the responsibilities devolved to the Scottish Government and Scottish Parliament have resulted from the Scotland Act 2012 and the Scotland Act 2016.

After a Scottish Parliamentary election, the First Minister is formally nominated by the Scottish Parliament and appointed by Her Majesty the Queen. The First Minister then appoints the Scottish Ministers to make up the Cabinet with the agreement of the Scottish Parliament and the approval of The Queen.

Scottish Cabinet Ministers and their responsibilities

The Cabinet is the main decision-making body of the Scottish Government. It is made up of the First Minister, all Cabinet Secretaries, Minister for Parliamentary Business and Permanent Secretary.

The First Minister appoints a Cabinet Secretary for each of the core portfolios described below, and a further 13 Ministers to support the work of the Scottish Cabinet, 11 of whom report to a Cabinet Secretary, and two Law Officers (Lord Advocate and Solicitor General for Scotland).

The previous parliament was dissolved in 24 March 2016, and following the Scottish Parliamentary election on 5 May 2016, the First Minister announced a new Scottish Cabinet, identifying education and the economy as priorities, along with the reform and improvement of public services and the ability to respond to challenges such as climate change in the years to come.

The Ministers serving in the Cabinet Team during 2016-17 were:

Nicola Sturgeon
First Minister

The First Minister is head of the Scottish Government. Ultimately responsible for all policy and decisions. Nicola Sturgeon became First Minister on 20 November 2014.

The Cabinet Team serving from 18 May 2016 is as follows:

John Swinney

Deputy First Minister and Cabinet Secretary for Education and Skills

Responsibilities included: Government Strategy, Delivery and outcomes across portfolios, Resilience, School standards, Educational attainment and closing the attainment gap, National Improvement Framework, Quality and improvement, Teaching profession, School infrastructure and staffing, Qualifications, Behaviour, Measures to combat bullying, The Gaelic and Scots languages, Modern languages, Historical Abuse Enquiry, Named person, Cross Government co-ordination of Public Service Reform, Childcare implementation, Early years, Child protection, Social services workforce, Adoption and Fostering, Children’s rights, Looked after children, Children’s hearings, Protection of vulnerable groups, Children’s services, Widening Access, Higher education and universities, Further education and colleges, Student funding, Science and STEM, Youth work, Skills Development Scotland, Implementation of Wood recommendations, Non advanced vocational skills.

Derek Mackay

Cabinet Secretary for Finance and the Constitution

Responsibilities included: Scottish Budget, Fiscal policy, Taxation, Budgetary monitoring and reporting, Scottish Public Finances and their sustainability, Public sector pay and pensions, Scottish Futures Trust, Efficient government, Public Bodies Policy, National Performance Framework, Registers of Scotland, Government procurement, Digital Public Services, Constitution, Government and Parliamentary business, Scottish Parliamentary elections and Local Government Elections, relations with other UK administrations, FOI, Open Government.

Keith Brown

Cabinet Secretary for Economy, Jobs and Fair Work

Responsibilities included: The Scottish economy, infrastructure investment policy, Scottish Enterprise, trade & inward investment, innovation, internationalisation, increasing productivity, fair work and inclusive growth, labour market strategy, living wage, European structural funds, consumer advocacy and advice, employment policy, trades unions, bankruptcy policy and Accountant in Bankruptcy (AiB), business, industry and manufacturing, cities, energy and energy consent, regional economic forums, life sciences, financial services, low carbon economy, renewable energy industries, youth and women’s employment, veterans, employability programmes.

Roseanna Cunningham

Cabinet Secretary for Environment, Climate Change and Land Reform

Responsibilities included: Climate change, flood prevention, water quality, land reform, physical and marine environment, sustainable development, biodiversity, natural heritage, environmental protection, environmental and climate justice, national parks, Scottish Water, The Crown Estate.

Angela Constance

Cabinet Secretary for Communities, Social Security and Equalities

Responsibilities included: Welfare policy, community empowerment, devolution to communities and reform of local government, equalities, religious and faith organisations, protection and development of social and human rights, third sector and social economy, democratic renewal, local government, housing, homelessness, community planning, planning, business improvement districts, town centres, building standards, social security, implementation of new powers, measures against poverty, disabilities, older people, tackling inequalities, social justice, regeneration.

Shona Robison

Cabinet Secretary for Health & Sport

Responsibilities included: NHS, Elective centres, Health care and social integration, Carers, Adult care and support, Implementing 2020 Vision and National Clinical Strategy, Patient services, NHS staff and pay, Problem alcohol use and recovery, Healthy working lives, National service planning, NHS performance, Acute services, Sporting events and legacy, Patient safety, Quality strategy, Public health, Health protection, Sport and physical activity, Primary care, Mental health, Allied healthcare services, Dentistry, Sexual health, medical records, Health improvement, Drugs policy, Child and maternal health.

Michael Matheson

Cabinet Secretary for Justice

Responsibilities included: The justice system, criminal law procedure, civil law, police, fire and rescue services, legal profession, violence reduction, anti-sectarianism, courts, sentencing, security, human rights, access to justice, community safety, anti-social behaviour, prisons and prisoners, female offenders, criminal justice social work, victims and witnesses, reducing reoffending, youth justice, liquor licensing.

Fiona Hyslop

Cabinet Secretary for Culture, Tourism & External Affairs

Responsibilities included: Culture and the arts, broadcasting, architecture, built heritage, national identity, cross government co-ordination on bringing major events to Scotland, national records, fair trade, tourism, international development, cross-government co-ordination on European Union and international relations, Scottish diaspora, creative industries.

Fergus Ewing

Cabinet Secretary for Rural Economy and Connectivity

Responsibilities included: Rural Scotland, Highlands Islands Enterprise, agriculture, forestry, fisheries, aquaculture, food and drink, crofting, transport, connectivity including 100 per cent broadband, cross government co-ordination on Islands, public transport.

Additional Government Ministers during 2016-17

From 18 May 2016 the Cabinet was supported by the following ministerial team:

Mark McDonald
Minister for Childcare and Early Years

Shirley-Anne Somerville
Minister for Further Education, Higher Education and Science

Jamie Hepburn
Minister for Employability and Training

Joe Fitzpatrick
Minister for Parliamentary Business

Aileen Campbell
Minister for Public Health and Sport

Maureen Watt
Minister for Mental Health

Alasdair Allan
Minister for International Development and Europe

Kevin Stewart
Minister for Local Government and Housing

Jeane Freeman
Minister for Social Security

Annabelle Ewing
Minister for Community Safety and Legal Affairs

Paul Wheelhouse
Minister for Business, Innovation and Energy

Humza Yousaf
Minister for Transport and the Islands

Michael Russell
Minister for UK Negotiations on Scotland’s
Place in Europe (from 26 August 2016)

Law Officers during 2016-17

Frank Mulholland QC
Lord Advocate (until 2 June 2016)

Lesley Thomson QC
Solicitor General (until 2 June 2016)

James Wolffe QC
Lord Advocate (from 2 June 2016)

Alison Di Rollo
Solicitor General (from 2 June 2016)

Further information on Cabinet and Ministerial responsibilities is available from the Scottish Parliament and Scottish Government websites, at parliament.scot and gov.scot respectively.

The Civil Service and Government Officials

The First Minister leads the Scottish Government, with the support of the Scottish Cabinet and Ministers. The civil service helps the government of the day develop and implement its policies as well as deliver public services. Civil servants are accountable to Ministers, who in turn are accountable to Parliament.

The Permanent Secretary is the senior civil servant in Scotland and leads the 5,000 plus people working for the Scottish Government. The Permanent Secretary supports the government in developing, implementing and communicating its policies; and is the principal policy adviser to the First Minister and Secretary to the Scottish Cabinet. The Permanent Secretary is also the Principal Accountable Officer with responsibility to ensure that the government's money and resources are used effectively and properly.

The government is structured into a number of directorates and their related public bodies. Directorates and agencies are managed by six Directors General.

Scottish Government Senior Management Team (Executive Board)

The Scottish Government Senior Management Team are responsible for ensuring that the Scottish Government is organised and managed in the most effective way to support Ministers in the implementation of their policies. Further information on the management structure of the Scottish Government is available on the Scottish Government website at gov.scot.

The Non-Executive Directors bring an external perspective to the consideration of corporate management issues such as staffing, administration costs, monitoring of programme expenditure, training and development, accommodation strategy and relations with stakeholders. Janet Hamblin, non-executive director, is the Chair of the Scottish Government Audit and Assurance Committee.

The members of the Executive Board during 2016-17 were:

Leslie Evans
Permanent Secretary

Sarah Davidson
DG Communities

Graeme Dickson
DG Enterprise, Environment and Innovation (until 31 May 2016)

Liz Ditchburn
DG Economy (from 18 April 2016)

Paul Gray
DG Health & Social Care

Paul Johnston
DG Learning & Justice

Alyson Stafford CBE
DG Finance

Gordon Wales
Acting DG Finance (from 30 January 2017)

Ken Thomson
DG Strategy & External Affairs

Non-executive members of the Executive Board during 2016-17 were:

Christina Allon (until September 2016)
Janet Hamblin
Linda McKay
Ronnie Hinds (from October 2016)

Register of Interests

Members of the Executive Board whom held company directorships and other significant interests during 2016-17 were:

Janet Hamblin: Director of RSM
Ronnie Hinds: Acting Chair of the Accounts Commission

SG2020 Transformation Programme

Over the next parliament the Scottish Government faces the biggest ever shift in responsibilities - raising taxes as well as spending them. To meet the challenges ahead, the organisation is committed to being:

Open

• accessible, trusted, an engaged and credible partner
• clear about roles and expectations of others
• valuing diversity and representative of the communities served

Capable

• world class in the approach to government, transforming Scotland by designing and delivering excellent public services and supporting ministers
• accountable, efficient and effective in performance and approach to tax-raising and spending
• competent, professional, inclusive, skilled and knowledgeable: an exemplar of fair work and an employer of choice
• well-led with consistently good management of people and change

Responsive

• ambitious for Scotland and confident about improving outcomes
• focused on priorities, flexible and effective in matching resources and capabilities
• designing better places, networks and systems

How the Scottish Budget is funded

The size of the Scottish Budget is largely determined by the block grant from UK Government which is allocated to the Secretary of State for Scotland through the approval of the UK Parliament (accounted for by the Scotland Office), and forms part of the UK public expenditure control regime. This requires the Scottish Government to plan, monitor and report its spending against the control aggregates set by the UK Parliament and HM Treasury alongside those set by the Scottish Parliament.

The Scottish Consolidated Fund was set up following devolution in 1999 and received its statutory powers under the Scotland Act 1998. The Scottish Consolidated Fund receives, from the Scotland Office, sums which have been voted by the UK Parliament for the purpose of "grant payable to the Fund". Funding is drawn down by the Scottish Government from the Scottish Consolidated Fund to support the spending plans laid out in the draft budget.

The Scotland Act 2012 empowered the Scottish Parliament to set a Scottish Rate of Income Tax ( SRIT). The Scottish Parliament set the Scottish rate of income tax for the first time in 2016-17. During 2016-17 £4.9 billion in income tax revenues derived from the Scottish Rate of Income Tax were assigned to the Scottish Administration and paid to the Scottish Consolidated Fund. Identification of Scottish taxpayers and administering the tax are matters for the UK Government and Her Majesty’s Revenue and Customs ( HMRC).

Under devolved powers from the 2012 Scotland Act, 2016-17 was the second year in which devolved taxes in respect of Land and Buildings Transactions and Landfill Tax have been managed in Scotland. A total of £633 million has been collected, £38 million below the initial estimates, which has been managed within the in-year budget. The block grant has been adjusted to take account of these locally raised tax receipts.

Revenue Scotland was established by the Revenue Scotland and Tax Powers Act 2014 to administer and collect both taxes. The taxes collected by Revenue Scotland are paid to the Scottish Consolidated Fund. The Devolved Taxes Account and the Scottish Consolidated Fund Account are prepared and published separately and can be accessed at gov.scot.

A Scottish Cash Reserve facility was created in 2015-16 to support any future fluctuations in tax income, and the surplus of £74 million from cash receipts in 2015-16 transferred to the Scotland Reserve on 1 April 2017 and is available for future deployment.

The Devolved Taxes Account, The Scottish Consolidated Fund Accounts, and these Scottish Government Consolidated Accounts together provide a suite of information describing the fiscal activity of the Scottish Government.

As further powers are devolved to Scotland, and the ability to use the existing fiscal levers to influence the funds available is increasing, the impact of accurate tax forecasting becomes greater. As a consequence, the institutional landscape of Scotland required a new body to support this growing fiscal responsibility and The Scottish Fiscal Commission was established in June 2014 as a non-statutory body to provide independent scrutiny of Scottish Government forecasts of receipts from taxes devolved to Scotland. By March 2016 the Scotland Act 2016 devolving more fiscal powers to Scotland was passed, and associated Fiscal Framework was agreed between the Scottish Government and UK Government. The Fiscal Framework changed the remit of the Scottish Fiscal Commission as reflected in the Scottish Fiscal Commission Act 2016 which received Royal Assent on 14 April 2016. Further information about the Scottish Fiscal Commission can be found at fiscal.scot.

Further information on the Scottish Budget for 2016-17 can be found at http://www.gov.scot/Publications/2015/12/9056

The total budget approved by the Scottish Parliament includes activities not included in these accounts. Note 21 to these accounts (page 119) provides a reconciliation to the total budget.

Accounting Boundary

These accounts reflect the consolidated assets and liabilities and the results of all entities within the Scottish Government consolidation accounting boundary as required by and defined in the Government Financial Reporting Manual ( FReM). This consists of ten internal Portfolios, supported by Administration, their Executive Agencies (each linked to a specific portfolio), the Crown Office and Procurator Fiscal Service and the NHS Bodies responsible for the planning, promotion, commissioning and the delivery of healthcare. The portfolio analysis in these accounts reflects the portfolios designated by the First Minister from 18 May 2016. The consolidation boundary includes the following:

Finance and the Constitution Portfolio
Executive Agency :
Scottish Public Pensions Agency ( www.sppa.gov.uk)

Health and Sport Portfolio
Other Consolidated Bodies:
The NHS Bodies in Scotland
Mental Welfare Commission ( www.mwcscot.org.uk)

Education and Skills Portfolio
Executive Agencies :
Disclosure Scotland ( www.disclosurescotland.co.uk)
Education Scotland ( www.educationscotland.gov.uk)
Student Awards Agency for Scotland ( www.saas.gov.uk)

Economy, Jobs and Fair Work Portfolio
Executive Agency:
Accountant in Bankruptcy ( www.aib.gov.uk)

Justice Portfolio
Executive Agency :
Scottish Prison Service ( www.sps.gov.uk)

Communities, Social Security and Equalities Portfolio

Environment, Climate Change and Land Reform Portfolio

Culture, Tourism and External Affairs Portfolio

Rural Economy and Connectivity Portfolio
Executive Agency :
Transport Scotland ( www.transportscotland.gov.uk)

Other Consolidated Bodies:
The Crown Office and Procurator Fiscal Service ( www.copfs.gov.uk)

In addition to inclusion within these consolidated accounts, the executive agencies and other bodies detailed above also publish separate accounts providing greater detail about their income and expenditure and assets and liabilities. The accounts can be accessed at the web-sites noted above.

The Scottish Government is also the sole shareholder of Caledonian Maritime Assets Ltd, David MacBrayne Ltd, Highland and Islands Airports Limited, Scottish Futures Trust and Prestwick Holdco Limited, and sponsor of a number of executive, advisory and tribunal Non-Departmental Public Bodies. These bodies are regarded as related parties with which the Scottish Government has had various transactions during the year, but do not fall within the Scottish Government consolidation accounting boundary. Further details of Scottish Public Bodies are available from the Scottish Government website at
www.gov.scot/Topics/Government/public-bodies.

The financial statements of NHS Boards include NHS Endowment Funds. These Endowment Funds are Registered Charities with the Office of the Scottish Charity Regulator ( OSCR) and they are also required by OSCR to prepare audited financial statements. NHS Endowment Funds are not part of the Scottish Government accounting boundary, and therefore they have not been included in Scottish Government consolidated accounts. These accounts report actual outturn compared to the budget authorised by the Scottish Parliament. The Scottish Government also routinely reports to Parliament each year on the Final Outturn for the Scottish Administration in an additional statement, once all the audited information is available, usually in December. This brings together the audited information from the bodies within the Scottish Administration to show this against the Budget limit authorised by the Scottish Parliament.

Performance Overview

The Budget Framework

The Scottish Government set out its spending plans for 2016-17 in December 2015 in Scottish Budget: Draft Budget 2016-17. Approval for a detailed budget for 2016-17 was given by the Parliament in March 2016 in the Budget (Scotland) Act 2016. The annual Budget is refined through in-year budget revisions, Parliamentary approval for which is given by statutory instrument.

Scotland’s Economic Strategy

The Scottish Government’s Purpose is to focus government and public services on creating a more successful country with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.

This remains the Government’s ambition to which all our efforts and actions are directed and is at the core of Scotland’s Economic Strategy ( SES), published in March 2015. The SES is built around two interdependent pillars: increasing competitiveness and tackling inequality . The Scottish Government’s National Economic Strategy is available on the Scottish Government’s website at
http://www.gov.scot/Topics/Economy/EconomicStrategy.

Infrastructure Investment

Infrastructure investment in support of better and modern public services and growth in the Scottish economy is a top priority for the Scottish Government.

The Scottish Government is taking forward a comprehensive infrastructure investment programme and further detail about the infrastructure investment plan can be found at
http://www.gov.scot/Topics/Government/Finance/18232/IIP

Exit from the EU

Following the referendum held on UK membership of the EU held in June 2016, in which the UK voted to leave the EU by 52% to 48%, the UK Government has given notice of intention to withdraw from the European Union-the triggering of article 50.

It is not yet possible to fully quantify the impact of this decision on Scotland, but the fluctuations in exchange rates and other economic features will inevitably be reflected in the financial performance reported in these and future accounts.

There remains a level of uncertainty on the impact of the referendum result on jobs and the economy in the medium to long-term.

The Scottish Government has sought assurance from the European Investment Bank ( EIB) that support will continue to be available for Scottish projects as the UK Government progresses with arrangements for the withdrawal from the EU.

At present Scotland remains part of the EU and current EU-funding remains in place. All programmes that have been approved by the European Commission up to March 2018 will continue as they do now.

During 2016-17, The First Minister appointed Michael Russell as Minister for UK in Negotiations on Scotland's Place in Europe, and he leads the discussions with the UK Government on our future relationship with Europe.

Further information can be found at http://www.gov.scot/Topics/International/Europe.

Economic Stimulus

The First Minister announced on 10 August 2016 measures to support and stimulate the economy in the wake of the EU referendum, including acceleration of Capital spending on projects to support and create employment, starting with an additional £100 million of funding in this financial year.

This investment has helped to support jobs and business activity across the Scottish economy at a time when economic uncertainty was heightened as a result of the EU referendum. In addition, such investment provides the assets and infrastructure which will support future economic growth in Scotland.

National Performance Framework

Introduced in 2007 and refreshed in 2011 and 2016, the Scottish Government’s National Performance Framework ( NPF) sets out in the Purpose and the National Outcomes, a clear, unified vision for Scotland and how our actions will improve the quality of life for the people of Scotland. The vision for a successful Scotland is described and measured in five parts which support and reinforce each other:

• The Scottish Government's Purpose sets out the direction and ambition for Scotland.
• Purpose Targets are high level targets that show progress towards the Purpose.
• Strategic Objectives describe where we will focus our actions.
• National Outcomes describe what the Scottish Government wants to achieve and the kind of Scotland we want to see.
• National Indicators enable us to track progress towards the Purpose and National Outcomes.
• Strategic Objectives, National Outcomes and National Indicators

Five Strategic Objectives support delivery of the Government’s overarching Purpose to focus government and public services on creating a more successful country, with opportunities for all Scotland to flourish, through increasing economic sustainable growth. These Objectives are supported by 16 National Outcomes which describe in more detail what the Scottish Government wants to achieve. The Five Strategic Objectives are:

Wealthier and Fairer
Enable businesses and people to increase their wealth and more people to share fairly in that wealth.

Smarter
Expand opportunities for Scots to succeed from nurture through to life-long learning ensuring higher and more widely shared achievements.

Healthier
Help people to sustain and improve their health, especially in disadvantaged communities, ensuring better, local and faster access to health care.

Safer and Stronger
Help local communities to flourish, becoming stronger, safer places to live, offering improved opportunities and a better quality of life.

Greener
Improve Scotland's natural and built environment and the sustainable use and enjoyment of it.

The sixteen National Outcomes describe what the Government wants to achieve over the next ten years, articulating more fully the Government's Purpose. They help to sharpen the focus of

government, enable our priorities to be clearly understood and provide a clear structure for delivery. The sixteen national outcomes are:

• We live in a Scotland that is the most attractive place for doing business in Europe.
• We realise our full economic potential with more and better employment opportunities for our people.
• We are better educated, more skilled and more successful, renowned for our research and innovation.
• Our young people are successful learners, confident individuals, effective contributors and responsible citizens.
• Our children have the best start in life and are ready to succeed.
• We live longer, healthier lives.
• We have tackled the significant inequalities in Scottish society.
• We have improved the life chances for children, young people and families at risk.
• We live our lives safe from crime, disorder and danger.
• We live in well-designed, sustainable places where we are able to access the amenities and services we need.
• We have strong, resilient and supportive communities where people take responsibility for their own actions and how they affect others.
• We value and enjoy our built and natural environment and protect it and enhance it for future generations.
• We take pride in a strong, fair and inclusive national identity.
• We reduce the local and global environmental impact of our consumption and production.
• Our people are able to maintain their independence as they get older and are able to access appropriate support when they need it.
• Our public services are high quality, continually improving, efficient and responsive to local people's needs.

A wide range of indicators are used to assess progress towards the Purpose and National Outcomes. These provide a broad measure of national and societal wellbeing, incorporating a range of economic, social and environmental indicators and targets. Progress against the measures set out in the NPF and SES can be found on the Scotland Performs website ( www.scotlandperforms.com). The data is constantly updated, and provides a politically neutral “stocktake”.

Performance Analysis

Outturn against Budget

These accounts report actual outturn compared to the budget authorised by the Scottish Parliament. The annual budget authorised by the Scottish Parliament is the budget for the wider Scottish Administration and includes the funding of activities which are not within the Scottish Government, and therefore outside the required accounting boundary of these accounts. There are also some differences between the HMT required budgeting rules and the government financial reporting accounting requirements that have to be accommodated in any comparison. These accounts therefore compare the actual outturn to the budget, both stated on the same accounting basis. There is a reconciliation and explanation of the budget reflected in the accounts with that shown in the annual budget documents provided in Note 21.

As described above, spending plans for financial year 2016-17 were set out in Scottish Budget: Draft Budget 2016-17 published in December 2015. After consideration by the Scottish Parliament Finance Committee and other Committees, these plans were presented in the Budget Bill introduced in January 2016 and received Royal Assent as the Budget (Scotland) Act 2016 in March 2016. Parliamentary approval for the in-year revisions to the plans set out in the Budget (Scotland) Act was granted in the Autumn Budget Revision made in September 2016 and Spring Budget Revision, made in February 2017.

The budget of £33,955 million reported in these accounts is net of adjustments to reflect those activities not included in the accounting boundary as described above. This is made up of a resource budget of £31,890 million and a capital budget of £2,065 million.

The financial results for the year are reported in the attached accounts. They record a Net Resource Outturn of £31,862 million resulting in an underspend of £28 million. The Net Capital Outturn for the year was £2,008 million resulting in an underspend of £57 million. Total underspend of £85 million represents approximately 0.25 per cent of the total budget. An explanation of the major variances is included in these accounts immediately following the Statements of Outturn. Of the total resource outturn of £31,862 million, £7,349 million (23%) is funding to local government.

Under the current devolution settlement, the Scottish Parliament is not allowed to overspend its budget. As a consequence, the Scottish Government consistently adopted a position of controlling public expenditure to ensure we live within the budget caps that apply, but remain able to carry forward some spending power resources for use in a future year.

The provisional outturn announcement made by the Cabinet Secretary for Finance and the Constitution in June 2017 indicated that the cash fiscal DEL budget in 2016-17 would be underspent by £191 million and the total DEL budget (including non-cash and financial transaction facilities) would be underspent by £299 million. The announcement reported the position in terms of Scottish Government expenditure against total ( DEL) as set by HM Treasury. The two sets of outturn information are not strictly comparable. The scope of what is included in these accounts is determined by the requirements of the Government’s Financial Reporting Manual ( FReM) and covers elements that are not included in the HM Treasury DEL figures.

Statement of Financial Position

The primary purpose of these accounts is to reflect the use of resources. The Statement of Financial Position reflects the assets held and liabilities arising from the spending plans which support policy choices. Assets are held not for their income generation capability or their inherent value but for their service potential or as a direct consequence of particular policies, for example providing healthcare in hospitals and the provision of funding to students in the form of loans. Similarly, liabilities arise as a consequence of the timing of commitments relating to spending and policy choices.

The Consolidated Statement of Financial Position, known previously as the balance sheet, (page 62) is one of the primary financial statements in the Consolidated Accounts. It summarises what is owned and owed by the Scottish Government. This shows taxpayers' equity – an accounting measurement of the amount invested by taxpayers that has continuing public benefit. It shows how much of this has arisen from the application of revenues (including the Scottish Block Grant) and that which has resulted through changes over time in the value of physical assets.

It is important to note that the consolidated accounts bring together the “balance sheets” of bodies that are significant in their own right. Detailed financial and narrative information on the major items, for example the road network, is available in the accounts and related reports of the relevant body - Transport Scotland; similarly, information about NHS bodies is in the detailed accounts for each body; the Student Awards Agency also provides separate reporting around student loans i.e. the loans are not within SAAS’ accounts but they do provide information about their administration, and the loans themselves are reported within these consolidated accounts.

The Statement of Financial Position includes:

• items which are owned, have already been funded from revenues and will provide continuing economic benefit in future periods. These increase taxpayers' equity.
• items which are owed and expected to require to be funded from future revenues. These decrease taxpayers' equity.
• items owed to the Scottish Government.
• an analysis between amounts that will release or require funding within a year and those which will be carried into future years.

Assets and liabilities

The value of the assets directly owned by the Scottish Government has been increasing over the last three years, largely as a result of capital investment. At the same time the value of liabilities directly owed by the Scottish Government has stayed broadly consistent.

Physical assets are the highest value group of assets in the Consolidated Accounts with a value of £28,562 million at 31 March 2017, of which 62 per cent ( £17,662 million) relates specifically to the road network. The Consolidated Accounts provide details of changes in the year. There were additions of £1,108 million that resulted from capital investment, offset by disposals and the net effect of depreciation and revaluations.

Most physical assets are valued by professional valuers in line with recognised methodologies. This provides an assessment of the continuing benefit they provide in financial terms. Where these assets have been funded by traditional means through capital then there are no continuing liabilities relating to them (maintenance and repair costs will arise). Those funded through other means (such as Public Finance Initiatives, Non Profit Distributing Projects and Scottish Government borrowed funds) also lead to liabilities representing the amounts that will require to be met from future budgets. Only physical assets that are deemed surplus and 'held for sale' (£25 million, page 86) will release resources previously invested for future use.

Financial assets include loans made directly to other organisations and individuals, investment funds used to deliver development programmes and investments in nationalised industries plus fully or part owned companies. These assets are of continuing benefit to the Scottish Government, and have the potential over time to release the resources currently invested for future use – including reinvestment, in accordance with the terms of the loan or other investment made.

The Consolidated Accounts show that the largest financial assets are loans of £2,708 million that have been made to Scottish Water, to finance its capital investment programmes (an increase of £38 million from 31 March 2016), and student loans valued at £3,257 million (an increase of £349 million from 31 March 2016). The latter are made under the terms of the student loans scheme, administered by the Student Loans Company Limited. Loans to Prestwick Airport, a wholly owned subsidiary of Transport Scotland, of £30 million are also included here.

The total value of taxpayers’ equity, reported in the Statement of Financial Position, is £31,171 million at 31 March 2017, an increase of £990 million (3.3%) from 31 March 2016.

The elements of the Statement of Financial Position are measured and disclosed in accordance with accounting standards and notes to the accounts provide analysis and explanation. More detailed information on the Statements of Financial Position of the individual entities included within these consolidated accounts can also be found in the entity’s published accounts by following the links provided on page 12 above.

Pensions

The SG consolidated accounts include as expenditure the employers’ contributions payable for the financial year. Staff in the Core Scottish Government, Executive Agencies and Crown and Procurator Fiscal Service are members of the Principal Civil Service Pension Scheme ( PCSPS). There is no pension liability in respect of the PCSPS within the SG consolidated accounts, because it is a UK scheme, administered by the Cabinet Office and it is not possible to identify the “Scottish share” of the underlying assets and liabilities of the scheme. The Cabinet Office produces separate pension scheme accounts, covering all members across the UK.

Staff in the NHS consolidated bodies can choose between the PCSPS and the NHS Superannuation Scheme for Scotland, which is an unfunded statutory public service pension scheme with benefits underwritten by the UK Government. The NHS scheme is administered by the Scottish Public Pensions Agency and annual scheme accounts are produced.

The liabilities to be met over time are not met from investments but paid out each year from the funding of the relevant schemes. The NHS scheme is funded within the Scottish Administration in the Scottish Budget; the PCSPS is dealt with through the UK annual process.

National Accounts Classification

Changes in EU statistical accounts classification rules ( ESA10) in September 2014 triggered a review of the classification of some Non Profit Distributing ( NPD) projects. There are no issues around the accounting entries, as infrastructure assets are recorded in the accounts in accordance with international accounting standards, which largely reflect the statistical national accounts rules. However the ESA10 rules have impacted on how public expenditure is measured against budgets.

The Office of National Statistics reclassification of some NPD projects has resulted in the initial capital value of some NPD projects during their construction period being charged against the capital outturn budget ( CDEL), rather than the associated revenue funding over the contractual period when cash payments are made.

Capital Borrowing

The Scotland Act 2012 came in to force from April 2015, and gave the Scottish Ministers the power to borrow funds for infrastructure investment. For 2016-17 the Scottish budget included provision to borrow up to £333 million.

As was the case in 2015-16, the Scottish Government has agreed with HM Treasury for the borrowing against NPD projects to be recorded against the Scotland Act 2012 borrowing limit for the year. £333 million has been recorded against the Scottish Government overall borrowing limit as set out in the Scotland Act 2012. No actual drawdown of borrowing from the National Loans Fund or other sources has been undertaken in 2016-17.

Payment Policy

The Scottish Government policy requires that all suppliers’ invoices not in dispute are paid within the terms of the relevant contract. The Scottish Government aims to pay 100% of invoices, including disputed invoices once the dispute has been settled, on time in these terms.

As part of its plan for supporting economic recovery in Scotland, the First Minister announced on 9 October 2008 that the Scottish Government would aspire to a 10-day target for paying bills to businesses in Scotland. This aspiration is above and beyond our contractual commitment to pay suppliers within 30 days. Paying supplier bills within ten working days is seen as a key objective, and an important expression of the Scottish Government’s commitment to supporting business through the current economic downturn.

For financial year 2016-17, the Scottish Government, its Executive Agencies and the Crown Office and Procurator Fiscal Service made 98.6% of all payments within 10 days (2015-16: 98.4%). The specific payment performance of the individual bodies consolidated here will be reported separately within their individual accounts. The core Scottish Government made 99.0% of payments within 10 days (2015-16: 98.8%). The NHS bodies in Scotland made 84.6% of all payments within 10 days (2015-16: 84.2%).

The payment performance of the Scottish Government, its Executive Agencies and the Crown Office and Procurator Fiscal Service for 2016-17 was 99.8% (2015-16: 99.7%) of all transactions settled within the terms of its contractual 30 day payment policy. The specific payment performance of the individual bodies consolidated here will be reported separately within their individual accounts. The core Scottish Government made 99.8% (2015-16: 99.7%) of all payments within the terms of its contractual 30 day payment policy. The NHS bodies in Scotland made 93.6% (2015-16: 93.6%) of all payments within the terms of their contractual 30 day payment policy.

Sustainability and Environmental Reporting

The Scottish Government has developed guidance for central government and the wider public sector on the preparation of sustainability reports to complement Annual Reports and Accounts. The guidance is intended to form a key element of a sustainability reporting framework for the Scottish public sector (referred to as the Scottish Sustainability Reporting Framework). The Framework will aim to inform best-practice across the public sector and demonstrate a coherent approach which meets statutory and non-statutory sustainability reporting requirements in the most cost effective and least burdensome manner to help drive improvements in sustainability performance.

The guidance relates specifically to information to be included in Scottish Public Sector Sustainability Reports intended to complement Annual Reports and Accounts and expected to be consistent with the reporting requirements flowing from the Climate Change (Scotland) Act 2009 and the principles for sustainability reporting contained in HM Treasury guidance.

The Scottish Government’s current reporting on sustainability is focused on the environmental aspects of sustainability; it currently publishes an annual report on environmental performance against a range of targets in respect of the core estate including emissions from energy use, waste arisings and recycling rates, transport & travel emissions, water consumption and biodiversity. The development of the Scottish Sustainability Reporting Framework includes consideration of how the current reporting format can be enhanced to embrace other aspects of sustainability performance.

Environmental reporting for the Scottish Government can be found on the Government On-Line Sustainable Performance Information Exchange ( GOLSPIE) portal ( http://www.scotland.gov.uk/Topics/Government/sustainabilityperformance). GOLSPIE is a dynamic platform which provides up-to-date access and reporting on the Scottish Government’s environmental targets, indicators and performance.

Each year The Scottish Government publishes a high level Carbon Assessment alongside the Scottish Government’s Draft Budget. The Carbon Assessment for 2016-17 is published at http://www.gov.scot/Publications/2015/12/8862

Principal Accountable Officer
26 September 2017