FGN2022/02 SPFM amendments: March 2022
The purpose of this note is to announce recent amendments to the Scottish Public Finance Manual (SPFM), specifically Annex A: Investment in businesses by Scottish Ministers to the chapter on Borrowing, lending and investment.
Borrowing, lending and investment – Annex A
Annex A to the chapter on Borrowing, lending and investment provides additional guidance in respect of investment in private businesses by Scottish Ministers. The existing guidance supplements the guidance contained within the main chapters of the SPFM and provides a clear and appropriate framework for Scottish Government investment.
The guidance contained within this Annex has been strengthened based on recent experience of interventions in private companies and constructive discussions with Audit Scotland. This Annex represents the Scottish Government’s Business Investment Framework and has been renamed accordingly.
Key changes
The ‘Business Investment Framework’ addresses key Audit Scotland recommendations set-out in previous audit reports and Public Audit Committee appearances, building upon existing guidance within the SPFM.
It distils key steps when Scottish Ministers are considering an initial or follow-on investment in, or financial support to, private businesses. It provides a framework for the development of proposals and advice to Ministers, and a structure for decision-making.
The improvements it makes are:
- outlining the overarching principles which any investment proposal supported by Scottish Ministers should take into account
- additional guidance on commercial risk and the importance of considering individual transaction risk in light of the overall risk profile of the Scottish Government’s existing investments
- updating of references to the Scottish Government approach to interventions as a result of structural changes, including the creation of Strategic Commercial Interventions Division
- the introduction of more prescriptive language where appropriate. This is balanced against the intention that aspects of the framework are principle-driven to ensure flexibility in Scottish Ministers’ response. The guidance at all times remains clear that any flexibility in approach is still required to meet the Accountable Officer tests
Overarching principles
Any investment proposal supported by the Scottish Government and its associated public bodies must be contingent upon the completion of satisfactory due diligence which considers the strategic, economic, commercial, finance and management case for intervention. This should also demonstrate a clear policy rationale in support of the proposal.
Risk exposure
The assessment of the commercial aspects of the proposal must include consideration of commercial risk. This will form a key part of the due diligence process undertaken in support of the investment. The risk of a transaction is to be considered in light of the overall risk profile of the Scottish Governments existing Investments. The risk exposure should be monitored both at the time of a transaction and throughout Scottish Government involvement.
Strategic Commercial Interventions Division
The Strategic Commercial Interventions Division (SCID) has a team dedicated to assessing interventions. Where there is a business requiring Government support, the SCID follows a bespoke roadmap which methodically examines the request, drawing on both internal and, where appropriate, external advice. When considering business intervention, the SCID is available to provide advice and support.