Scottish Government consolidated accounts: 2018-2019

9. Financial Assets

9a. Non-Current Financial Assets

	Interests in Nationalised Industries and Limited Companies	Voted Loans	NLF Loans	Student Loans	Housing Loans	Housing Shared equity Loans	Energy Related Loans	EU CAP Loans	Other Funds	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 April 2018	25	2,985	591	3,291	182	860	127	1	179	8,241
Add element reported within current assets	-	84	31	145	9	-	1	322	3	595
Advances and acquisitions:
Cash advances	-	308	-	615	56	140	30	425	74	1,648
Capitalised interest	-	-	-	75	-	-	1	-	-	76
Transfers	2	-	-	-	-	-	-	-	(2)	-
Fair value adjustment	-	-	-	(590)	(14)	7	-	-	-	(597)
Write off	-	-	-	-	-	-	(11)	-	(130)	(141)
Repayments and disposals	-	(87)	(31)	(152)	(15)	(55)	(2)	(492)	(24)	(858)
Unwinding of discounted cash flow	-	-	-	75	-	-	-	-	-	75
Revaluations to outturn statement	-	-	-	-	-	-	-	-	-	-
Balance at 31 March 2019	27	3,290	591	3,459	218	952	146	256	100	9,039
Loans repayable within 12 months transferred to current assets	-	(97)	(27)	(150)	(16)	-	(4)	(256)	(1)	(551)
Balance at 31 March 2019	27	3,193	564	3,309	202	952	142	-	99	8,488

Investments have been measured and presented in accordance with IAS 32, IAS 39, IFRS 13 and IFRS 9 as modified by the Government Financial Reporting Manual (FReM). See also note 1.7

Scottish Water National Loans Fund repayments of £31m have not been included in the Environment, Climate Change and Land Reform portfolio capital outturn.

In line with IFRS 9 the categories of financial assets have been changed this year to ensure further disclosure of Shared Equity Housing Loans.

This has been applied retrospectively, with the prior year table having also been restated.

Restated Prior Year	Interests in Nationalised Industries and Limited Companies	Voted Loans	NLF Loans	Student Loans	Housing Loans	Housing Shared equity Loans	Energy Related Loans	EU CAP Loans	Other Funds	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 April 2017	25	2,766	622	3,122	156	748	92	-	137	7,668
Add element reported within current assets	-	81	30	135	1	-	-	185	1	433
Advances and acquisitions:
Cash advances	-	303	-	602	52	131	32	369	61	1,550
Capitalised interest	-	-	-	53	-	-	-	-	-	53
Adjustment	-	-	-	-	-	-	4	-	-	4
Fair value adjustment	-	-	-	(436)	(17)	18	-	-	-	(435)
Repayments and disposals	-	(81)	(30)	(147)	(1)	(37)	-	(231)	(17)	(544)
Unwinding of discounted cash flow	-	-	-	107	-	-	-	-	-	107
Balance at 31 March 2018	25	3,069	622	3,436	191	860	128	323	182	8,836
Loans repayable within 12 months transferred to current assets	-	(84)	(31)	(145)	(9)	-	(1)	(322)	(3)	(595)
Balance at 31 March 2018	25	2,985	591	3,291	182	860	127	1	179	8,241

Investments have been measured and presented in accordance with IAS 32, IAS 39, IFRS 13 and IFRS 9 as modified by the Government Financial Reporting Manual (FReM). See also note 1.7

Scottish Water National Loans Fund repayments of £30m have not been included in the Environment, Climate Change and Land Reform portfolio capital outturn.

For further information on the Prior year adjustment for Student Loans cumulative effect see note 9b.

9b. Nationalised Industries

As at 31 March 2019, the Scottish Ministers are the sole shareholder in Caledonian Maritime Assets Limited, David MacBrayne Limited, Highlands and Islands Airports Limited and TS Prestwick Holdco Limited. The Scottish Ministers hold the following investments:

Caledonian Maritime Assets Limited	1,500,000 ordinary shares of £10 each
David MacBrayne Limited	5,500,002 ordinary shares of £1 each
Highlands and Islands Airport Limited	50,000 ordinary shares of £1 each
TS Prestwick Holdco Limited	1 ordinary share of £1

These organisations are operated and managed independently of the Scottish Government, and, therefore, do not fall within the consolidated portfolio accounting boundary. The companies each publish an individual annual report and accounts. The net assets and results of the aforementioned companies are summarised in the table below.

	Caledonian Maritime Assets Ltd	David MacBrayne Ltd	Highlands and Islands Airports Ltd	TS Prestwick Holdco Ltd
	£m	£m	£m	£m
Net Assets/(Liabilities) as at 31 March 2019	85	35	28	(38)
Turnover	47	214	25	24
Profit/(Loss) for the financial year	4	8	(3)	(4)

These results are in draft as their accounts are yet to be published.

Caledonian Maritime Assets Ltd

Following a restructure of the Caledonian MacBrayne group in 2006, Caledonian MacBrayne Limited became known as Caledonian Maritime Assets Limited (CMAL) and CalMac Ferries Limited (CFL) was incorporated. CFL took over operation of the Clyde & Hebrides Ferry Services as successor to Caledonian MacBrayne Limited. CMAL retained ownership of all vessels and ports, which it leases to the operator of the Clyde & Hebrides Ferry services (currently CFL). CMAL remains wholly owned by Scottish Ministers.

David MacBrayne Ltd

Scottish Ministers previously owned 2 shares of £1 in a dormant company, David MacBrayne Limited. In the course of the restructuring of the Caledonian MacBrayne group in 2006, Scottish Ministers' shareholding in David MacBrayne Limited was increased by 5,500,000 shares to 5,500,002 ordinary shares of £1. David MacBrayne Limited is now the holding company for the ferry operating companies CalMac Ferries Limited and Argyll Ferries Limited.

Highlands and Islands Airports Ltd (HIAL)

Scottish Ministers are the sole shareholders in HIAL. The company's purpose is to maintain the safe operation of its airports to support economic and social development in the Highland and Islands. HIAL currently operates 11 airports; 10 in the Highlands and Islands and also Dundee, which it assumed responsibility for in December 2007 and now operates via a wholly owned subsidiary company, Dundee Airport Limited.

TS Prestwick Holdco Limited

In 2013 Transport Scotland purchased the entire share capital of Prestwick Aviation Holdings Limited, the holding company of subsidiaries who own and operate Glasgow Prestwick Airport, through a company set up for this specific purpose - TS Prestwick Holdco Limited. Subsequently Transport Scotland advanced loan funding to the group to cover the cash deficit arising from its operating deficit and capital expenditure.

Burntisland Fabrications

Over the past two financial years the Scottish Government has advanced loans on a commercial basis to BiFab. As a result of the conversion of these loans to equity the Scottish Government now holds a 32.4% stake in the company. As part of year end processes the Scottish Government commissioned a formal valuation of its equity holding which resulted in a valuation of £2.0 million.

9c. Other Interests

The loans issued and reported as Financial Assets within these accounts have been valued reflecting current market expectations regarding discounted future cash flows. Under IFRS 13, these valuations have been classed as level 3 unobservable inputs, as there is no active market for the investments.

Student Loan Company (SLC)

The Student Loan Company is a non-departmental public body which administers the payment and collection of loans to UK students. When it was set up in 1990, it was wholly owned by the Secretary of State for Education and Skills (now the Department for Education) and the Secretary of State for Scotland. From 1 July 1999, the student support function was transferred to the Scottish Ministers with respect to students ordinarily resident in Scotland. Following a restructuring the Scottish Ministers hold 1 share with a nominal value of £0.50 (5% of the equity) in the SLC.

Scottish Futures Trust Ltd (SFT)

The Scottish Futures Trust was set up in September 2008 to work collaboratively across the public sector to secure improved value for money in infrastructure procurement, and is working jointly with local authorities, NHS Boards and other public bodies to deliver benefits in cost effective asset procurement and management. The SFT is a limited company owned by the Scottish Ministers with share capital of £100, £2 of which has been issued and is held by the Scottish Ministers.

Scottish Health Innovations Ltd

Scottish Health Innovations Ltd is a company that works in partnership with NHS Scotland to protect and develop healthcare innovations. The company is limited by guarantee with three members, the Scottish Ministers, the National Waiting Times Centre, and NHS Tayside.

Voted Loans

The Scottish Ministers have provided total loans from voted provision to Caledonian Maritime Assets Limited of £202m to be used for the construction of new shipping; £4m to crofters for building purposes; and £3,084 to Scottish Water for their capital investment programmes.

National Loans Fund

Prior to 1 July 1999, the Secretary of State lent money to Scottish Enterprise, Scottish Homes and the three Water Authorities (now Scottish Water), out of the National Loans Fund. At 1 July 1999, the right to the sums outstanding was transferred to the Scottish Ministers who must pay the repayments and interest to the Secretary of State for Scotland via the Scottish Consolidated Fund. The loans to Scottish Enterprise and Scottish Homes have since been repaid. The NLF loans remaining are with Scottish Water.

Scottish Water's 2018-19 annual report and accounts can be found at: https://www.scottishwater.co.uk/en/Help-and-Resources/Document-Hub/Key-Publications/Annual-Reports

Student Loans

Loans made under the terms of the student loans scheme are administered by the Student Loans Company Limited, a company owned jointly by the Scottish Ministers and the Department for Education. These loans are accounted for on the basis of the loan balances of students domiciled in Scotland and adjusted for fair value and impairment.

Housing Loans

Housing Association loans are made up of repayment loans and deferred loans. The repayment loans are secured loans to registered Housing Associations and are repayable on an annuity basis, the deferred loans relate to the transfer of housing stock.

Housing Loans include Charitable Bonds. In 2018-19 The Scottish Government invested £38m in 3 Charitable Bonds, 2 of which are due for repayment in 10 years, the third 15 years. The bond issuer made loans to 3 Registered Social Landlords (RSLs), totalling £29m, for the development of new affordable homes. The remaining £9m will be donated by the bond issuer to one or more charitable RSLs for the provision of new social rent housing.

Housing Shared Equity Loans

Shared Equity Housing Loans include the Shared Equity Housing and Deferred Financial Commitment Loans. The fair value estimation technique for the loans relates to the underlying property valuations using the Nationwide Pricing Index method.

Energy Funds

The Scottish Government provides funding to Salix Finance Limited and the Energy Saving Trust (EST) to deliver programmes relating to energy efficiency which include the issue of loans:

Salix provides loans to the public sector to improve their energy efficiency and reduce their carbon emissions. In 2018-19, £3.6m of advances were made (2017-18: £4.7m).

EST administer and manage funds on behalf of the Scottish Government which provide loans to save energy and reduce carbon dioxide emissions. In 2018-19 £4.5m (2017-18: £8.9m) of advances were made.

Through the Home Energy Efficiency Programme (HEEPs) loans are available to help homeowners make energy and money saving improvements to their homes. In 2018-19, advances of £3m (2017-18: £7.7m) were made.

The Energy Investment Fund (EIF) is delivered by Scottish Enterprise. EIF provides funding to commercial and community renewable energy projects across Scotland. In 2018-19 all projects were funded from loan repayments.

EU CAP Loans

From 2015-16, a Scottish Government national loans scheme was put in place to provide support to the farming economy. In 2018-19, advances of £425m (2017-18: £371m) were made with repayments of £492m (2017-18: £231m).

Other Funds

The Scottish Government, and the European Regional Development Funds, have established the Scottish Partnership for Regeneration in Urban Centres (SPRUCE) Fund. This fund is a JESSICA (Joint Venture Support for Sustainable Investment in City Areas) Urban Development Fund (£49.5m; 2017-18: £43m) that helps fund regeneration and energy efficient projects within targeted areas of Scotland.

The Scottish Futures Trust was set up in September 2008 to work collaboratively across the public sector to secure improved value for money in infrastructure procurement, and is working jointly with local authorities, NHS Boards and other public bodies to deliver benefits in cost effective asset procurement and management. The SFT is a limited company owned by the Scottish Ministers with share capital of £100, £2 of which has been issued and is held by the Scottish Ministers.

The Scottish Government has provided financial transactions totalling £10m (£6m provided in 2015-16 and £4m provided in 2016-17), over a 20 to 25 year period, to three of the National Performing Companies (Scottish Ballet, Scottish Opera and the National Theatre of Scotland). These related to capital projects and business support, including the new Rockvilla creation centre and an extension to the Theatre Royal, both in Glasgow.

In 2018-19, the Scottish Government provided commercial loans of £48m to private companies (2017-18: £34m).

9d. Adjustment to Student Loans opening position

Loans made under the terms of the student loans scheme are administered by the Student Loans Company Limited, a company owned jointly by the Scottish Ministers and the Department for Education.

The value of new loans is calculated using a forecasting model which uses data on the demographics of borrowers to forecast likely repayment of loans (the 'RAB' charge). The model depends on a complex set of assumptions including borrower demographics, earnings growth, the Bank of England base rate, and OBR forecasts for long-term and short-term growth in RPI. As student loans have a maximum repayment period of 35 year, the model is highly dependent on long-term assumptions and the valuation of the student loan book is inherently uncertain. The amounts provided reflect statisticians' best estimate as at 31 March 2019 and reduce the carrying value of new loans drawn down by £203m (33%).

Due to the inherent uncertainty of the valuation of the student loan book, the value of loans drawn down in previous years is reviewed annually, and the carrying value is adjusted if necessary. The forecasting model is re-run on outstanding student loans using current assumptions and the latest earnings and repayment data to forecast the likely repayment of student loans drawn down in previous years (the 'stock' charge). The recalculated value is compared to the opening carrying value, and the carrying value is reduced or increased if the movement is considered likely to be permanent.

The stock charge (the proportion of the student loan book the forecasting model indicates is not likely to be repaid) increased from 30% for the 2017-18 financial year to 38% for the 2018-19 financial year. The fair value of the student loans book has therefore been adjusted to reflect the following factors:

a) On 12th June 2018, the Minister for Further Education, Higher Education and Science announced that the Scottish Government would be increasing the repayment threshold to £25,000 from April 2021 and would introduce legislation by the end of 2018 to reduce the repayment period from 35 years to 30 years. This legislation was subsequently laid in the Scottish Parliament on the 25th October and came into force on the 4th December. These changes will apply to both new and existing borrowers. This had the effect of increasing the stock charge for 2018-19 to 37%, requiring an adjustment of £338m.

b) Revised assumptions and modelling improvements were incorporated into the model, including new data from the Student Loans Company to reflect an additional year of data on earnings and repayments, revised RPI forecasts, and adjustments to more accurately reflect the timing of repayments and outlay. Collectively, this had the effect of increasing the stock charge for 2018-19 by a further percentage point, requiring an adjustment of £47m.

c) While the value of new borrowing was reduced to fair value each year, the adjustment to the value of the existing loan book has been marginal each year since 2013. Over time this means that, although there were no changes in policy or economic events to prompt an impairment review, the carrying value and fair value of the student loan book diverged. The fair value was reviewed as at 31 March 2018, and it was identified the carrying value reflected a reduction of 25% on the face value of the student loan book, while the forecasting model indicated a reduction of 30% was required at that date. An adjustment of £255m has been applied to the opening balance to reflect the cumulative movement in the fair value of the student loan book.