Mackay’s Missing Millions Summary
This analysis examines overspends by the SNP Government since 2008.
It totals up the cost of over-budget projects, overspend on departmental budgets and unnecessary spend caused by compliance, governance or policy failures.
The sum totals £431.5 million, and increases to £947.7 million when overspends that are the partial responsibility of the Scottish government are included.
This analysis makes no judgment on the merit of the policies in question. It covers only those policies where the SNP Government failed to deliver policies within the spending envelope originally set out.
It establishes an opportunity cost: the amount that was overspent, which could have been invested elsewhere to deliver better services, or used to increase the overall Scottish Government underspend.
Project Overspend (£m) Direct overspends on individual public sector projects 152.91 Common Agricultural Policy IT System 76.41 NHS 24 Telephone Helpline 49.80 Edinburgh Trams Inquiry 5.47 Government Communications 2.25 N2NP legal costs 0.50 Staff Overtime Costs for CAP IT System 0.15 Prestwick Airport support 18.33 Scottish Government consolidated accounts overspends 264.38 2016 Rural Affairs Capital spending 42.00 2011-17 Police Scotland 31.75 2014 Ferry services overspend 24.47 2012 Local government grant 18.93 2014 Infrastructure 17.33 2016 Ferry Services 14.00 2012 Ferry Services 13.67 2011 Further and higher education 12.89
1 Relief funding for concessionary fares 10.35 2014 Roads 10.19 2011 Ferry Services 9.66 2012 Roads 9.47 2012 investment funds 9.47 2015 Fire and rescue service 7.11 2011 Police central government 5.37 2012 Central funding for police projects 5.26 Sumburgh terminal and runway works 5.00 2012 Administration 3.16 HIE wind towers 3.06 2014 Administration 3.06 2014 Administration 3.06 2014 Scottish Police Authority 2.04 2012 Prison service 1.05 Compliance overspends 14.21 Compliance Failure with EU Infrastructure Rules 14.21 Projects the SNP Government is partially responsible for 516.20 Over budget on major rail projects 379.00 Edinburgh Sick Kids redevelopment 95.55 Failed investments 32.05 Grants for V&A Museum, Dundee 9.60
GRAND TOTAL 947.7
2 Notes on Methodology
Inclusion and exclusion
This analysis includes overspends that are the direct responsibility of the Scottish Government or where the Scottish Government can reasonably be considered to be partially responsible.
The crude test is that if the Scottish Government is prepared to take credit when a project is delivered, they should take responsibility when a similar project costs more than expected.
This includes:
Projects where the Scottish Government or a public body under its direction is a client, but it has been liable for the overspend rather than sharing it or transferring the liability to the supplier.
Projects where investment is split between public and private funds and the public share has increased, even if the total cost remained constant or the funding mechanism changed.
Projects which have shared funding between central and local government, or central government and other public bodies, and the central government share has increased.
Projects where failure to listen to expert advice or poor policymaking has resulted in a further costs to the taxpayer, for example in remedial policies or legal costs.
It does not include:
Demand-led spending and Annually Managed Expenditure (AME), such as public sector pensions or legal aid.
Overspends which are caused purely by technical or accounting treatments, such as reclassifying capital spending as revenue spending, or where accounts technically mark an overspend due to timing differences in receiving income.
Overspends in consolidated accounts from 2007-11, as the presentation of Scottish Government accounts changed.
Accounting for inflation
All costs are in 2016/17 prices, using the Scottish Parliament Information Centre’s inflation calculator.
Period covered:
This analysis covers the period from 2008. It captures the overall cost to Scottish taxpayers in today’s prices of projects that have overspent and those that are forecast to overspend.
3 This includes public-private projects where the long-term cost to the taxpayer is already forecast to be above the original cost set out by the government. Where an overspend is forecast in future, this analysis uses the latest publicly available projections for cost and measures the difference from the initial estimates. So it is a snapshot based on the data that the Scottish Government chooses to use.
The full methodology for each category is detailed below.
4 1. Direct overspends on individual government projects
These are individual, high-profile projects wholly under public funding and direction, where the Scottish Government has exceeded its original budget.
Project Overspend (£m) Common Agricultural Policy IT System 76.41 NHS 24 Telephone Helpline 49.8 Edinburgh Trams Inquiry 5.47 Scottish Government Communications Team 2.25 N2NP legal costs 0.5 Staff Overtime Costs for CAP IT System 0.15 Prestwick Airport support 18.33 TOTAL 152.91
Common Agricultural Policy IT System: £76.41 million
The overall cost for delivery of the CAP futures project as originally briefed in December 2012 was £102 million, of which £50 million was the IT system. In 2016- 17 prices, that is £107.2 million and £52.59 million respectively.
The eventual cost by April 2015 was £178 million, of which £129 million was the IT system.
This analysis followed advice from the Scottish Parliament Information Centre, where the staff overtime and increased payments for farmers as part of the 2016 overspend in Rural Affairs are counted separately later on in this paper. This total represents only the £76.41 million overspend specifically on the IT system.
(Audit Scotland, May 2016, link).
NHS 24 Telephone Helpline: £49.8 million In 2009, NHS 24 started work on its new system and in 2011 it procured the technology. The original cost for the NHS 24 telephone helpline project was £75.8 million, or £81.4 million in 2016-17 prices. It was originally due to be ready for October 2013.
Audit Scotland reported in June 2016 that the project is now expected to cost £131 million – and will still not be rolled out across Scotland until the end of 2017.
(Audit Scotland, 6 October 2016, link).
Edinburgh Trams Inquiry: £5.47 million
5 The Edinburgh Trams Inquiry was set up in June 2014 by Alex Salmond, then First Minister, who said it would be “swift and thorough”.
It was originally estimated to cost £1 million, or £1.03 million in 2016-17 prices.
By November 2016 it was reported the Inquiry is expected to cost £6.5 million in total, and has been unable to say when it will report its findings.
(Daily Record, 20 November 2016, link).
Scottish Government Communications Team: £2.2 million
In 2014, the SNP originally forecast spending of £2.7 million on their strategic communications team in 2015/16, or £2.75 million in 2016-17 prices.
This increased to £4.9 million in 2015-16, or £5 million in 2016-17 prices.
(The Daily Express, 27 October 2016, link).
N2NP legal costs: £0.5 million
Following the Supreme Court’s ruling that the Named Person scheme was ‘unlawful’, the Scottish Government was ordered to pay legal costs.
The No To Named Persons campaign estimates the costs to be £500,000.
(no2np.org, 14 November 2016, link)
Staff Overtime Costs for CAP IT System: £0.15 million
Evidence given by Scottish Government officials estimate the additional overspend due to overtime on the CAP IT system in 2015-16 was in the region of £150,000 (Jonathan Pryce: Scottish Government: Official Report, 29 September 2016, link).
This is funded from the budget that supports administration and staff in the rural payments and inspections division. It is distinct from both the direct IT cost and the capital overspend to offer farmers loans.
Subsequent evidence given at committee suggested that the cost could be significantly higher – up to £1 million – and as such the figure of £0.15 million represents a conservative one (Scotsman, 29 November 2016, link).
Prestwick Airport: £18.33 million
The Scottish Government bought the airport for £1 in 2013. The purchase business plan for the airport estimated that it would require a loan of £21.3 million up to 2022- 23, with a sale planned for 2027/28 at the earliest. In 2016-17 prices, the loan value is £22.04 million.
6 A revised business plan carried out in May 2014 forecast that it would require £39.6 million of support up to 2021-22. In 2016-17 prices, that is £40.37 million.
(Audit Scotland, The Scottish Government’s Purchase of Glasgow Prestwick Airport, p25, February 2015, link).
7 2. Overspends from consolidated accounts
These are budget lines which went over-budget as recorded in Scottish Government consolidated accounts from 2011 to 2016.
During this period, the Scottish Government was not allowed under the devolution settlement to overspend its budget and ran overall surpluses.
This analysis seeks to understand overspends within that: how much was overspent in individual budgets at the smallest possible accounting unit, usually revenue or capital budget in a policy area. The point is to understand opportunity costs, as clearly if there were no overspends, the overall surplus would have been larger – or other projects could have received increased funding.
This includes over- and under-spends at the smallest possible budget line. For example, ferry services in 2016 under-spent on fuel by £6 million, but overspent by £8 million on contract costs, £7 million on transformation projects and £5 million on Clyde, Hebridean and Argyll ferries – so this analysis counts the overspend as a net £14 million.
It excludes overspends that are a result purely of accounting treatments, and Annually Managed Expenditure which is volatile and demand-driven.
Overall, this is a fair and reasonable way to calculate overspends as recorded in Scottish Government accounts.
Project Overspend (£m) 2016 Rural Affairs Capital 42.00 2011-17 Police Scotland 31.75 2014 Ferry services overspend 24.47 2012 Local government grant 18.93 2014 Infrastructure 17.33 2016 Ferry Services 14.00 2012 Ferry Services 13.67 2011 Further and higher education 12.89 Relief funding for concessionary fares 10.35 2014 Roads 10.19 2011 Ferry Services 9.66 2012 Roads 9.47 2012 investment funds 9.47 2015 Fire and rescue service 7.11
8 2011 Police central government 5.37 2012 Central funding for police projects 5.26 Sumburgh terminal and runway works 5.00 2012 Administration 3.16 HIE wind towers 3.06 2014 Administration 3.06 2014 Administration 3.06 2014 Scottish Police Authority 2.04 2012 Prison service 1.05 2013 Prisons service 1.03 Legal Aid fund relocation 1.02 264.38 TOTAL
Police Scotland overspends: £31.75 million
Since it was created in 2012, Police Scotland ran small surpluses in 2012-14, and larger deficits since.
It is currently projected to run a £17.5 million overspend in 2016-17.
The total projected overspend, totaling up cumulative overspends in each year from 2012-13, in 2016-17 prices, is £31.75 million.
(Audit Scotland, link; Audit Scotland, link; Audit Scotland, link; BBC News, link).
2016 overspends listed in consolidated accounts
Rural affairs capital: £42m (£54m of loans in respect of Less Favoured Area Support Scheme payment delays resulted in a net overspend of £46m on financial transactions. Overspend of £3m in relation to Marine Scotland asset. Underspend of £5m relating to rephasing of the Futures Project to support CAP reform and £2m from sale of Research asset). This is treated separately to the other CAP project costs noted above.
Ferry services: £14m (£8m of increased Ferry Services contract costs, £7m of additional expenditure on Calmac transformation projects and £5m of further spend on Clyde and Hebrides Ferry Services and Argyll Ferries partially offset by £6m fuel savings.)
Air services: £5m (Additional expenditure of £3m on Sumburgh terminal maintenance and £2m on Sumburgh runway remediation).
9 We have not included overspends including £4m on emergency assistance for Local Authorities, £16m for housing fair value adjustments, and £4m of road spending reclassified from capital to revenue.
(2016 consolidated annual accounts (link))
2015 overspends listed in consolidated accounts
Legal aid fund facilities: £1 million (we have not included a £4m overspend in the Legal Aid Fund as this is demand-driven. However, on top of that, there was £1m variance ‘associated with relocation from its accommodation at Drumsheugh Gardens and additional pension costs’). In 2016-17 prices that is £1.02 million.
Scottish Fire & Rescue Service: £7 million (Additional funds were required for working capital purposes due to changes in the level of year end creditors and accruals). In 2016-17 prices that is £7.11 million.
2014 overspends listed in consolidated accounts
Wind towers: £3m (overspend by Highlands & Islands Enterprise on Wind Towers). That is £3.06 million in 2016-17 prices.
Scottish police authority: £2m (£2m funding agreed for the Specialist Crime Division. This is not counted in the Police Scotland overspends as noted above). That is £2.04 million in 2016-17 prices.
Motorways and trunk roads: £10m (£10m of additional agreed expenditure for Network Strengthening & Improvement). That is £10.19 million in 2016-17 prices.
Ferry services: £24m (Overspends due to £9m of additional fuel costs, £5m of additional costs of Ferries plan, £3m in contribution to Calmac Pension Scheme, £3m of additional costs in year 1 of Northern Isles contract, £4m additional costs for Clyde Hebrides Ferry Service). That is £24.47 million in 2016-17 prices.
Administration: £3m (The overspend was primarily due to expenditure to support the cost of eCommerce Shared Services). That is £3.06 million in 2016-17 prices.
Infrastructure: £17m (£2m overspend due to additional loan for hybrid ferry vessel, and £1m overspend due to capitalised loans to Energy Savings Trust, £14m overspend in settlement of land compensation payments). That is £17.33 in 2016-17 prices.
We have not included a £4m overspend as a result of rescheduling the original budget profile of the Scottish Crime Campus; a £33m underspend on depreciation, £33m overspend as a result of a reclassification of expenditure from capital in trunk road; and £2m overspend through revised loan profile due to repayments lower than budgeted.
(2014 consolidated annual accounts (link))
10 2013 overspends listed in consolidated accounts
Concession fares and bus services: £10m (Additional £10m transitional relief funding agreed to operators as part of move to lower rate for concessionary fare). That is £10.35 million in 2016-17 prices.
Prison service: £1m (Minor overspend in Scottish Prison Service). That is £1.03 million in 2016-17 prices.
We have not included £21m of overspends in roads, driven largely by reclassification of spending from capital to revenue.
(2013 consolidated accounts (link))
2012 overspends listed in consolidated accounts
Police central government: £5m (The overspend was primarily due to additional funding being provided to a number of Police Central Government programmes, including Scottish Police Services Authority, the resource related elements of the Gartcosh capital investment programme, Serious Organised Crime Agency and National Policing Improvement Agency's Airwave to fund additional work and meet specific budgetary pressures). That is £5.26 million in 2016-17 prices.
Motorways and trunk roads: £9m (Additional spend on winter maintenance £5m; unbudgeted staff expenditure £3m; additional grants to Forth Estuary Transport Authority £5m; less reduction on road improvements (£4m)). That is £9.47 million in 2016-17 prices.
Ferry services: £13m (Overspend on contracts for Clyde & Hebrides Ferry Service and Northern Isles Ferry Services, principally due to increased fuel costs of £15m balanced by reduction in grants for piers (£2m)). That is £13.67 million in 2016-17 prices.
Grants to Local Authorities: £18m (Increased expenditure on the Transfer of the Management of Development Funding £3m. Additional grant to Strathclyde Passenger Transport for subway modernisation £15m). That is £18.93 million in 2016-17 prices.
Administration: £3m (Other staff costs, including amount spent on early release schemes). That is £3.06 million in 2016-17 prices.
Prison service: £1m (Minor overspend in Scottish Prison Service). That is £1.05 million in 2016-17 prices.
Finance: £9m (Overspend mainly due to managed Investment Funds for which no capital budget existed). That is £9.47 million in 2016-17 prices.
This does not include £42 million spent to top up the Edinburgh Trams project.
11 (2012 consolidated accounts (link). 2011 overspends listed in consolidated accounts
Ferry services: £9m (Overspends relate to increased contract costs for CalMac, Northlink, Cowal and Campbeltown ferries (£12m) and additional funding for vessel refurbishment and replacement (£2m). Underspends due to revised clawback figures for David MacBrayne Limited (£3m) and slippage in Road Equivalent Tariff (RET) payments (£2m)). That is £9.66 million in 2016-17 prices.
Scottish further and higher education funding council: £12m (overspend due to £8m for additional College Bursaries; £4m for extra college places and associated support and the remainder of the overspend (£14m) will be recovered from the 2011-12 grant in aid allocation, as part of the Autumn Budget Revision process). That is £12.89 million in 2016-17 prices.
Police central government: £5m (The overspend was primarily due to additional funding being provided to the Scottish Police Services Authority to fund additional work). That is £5.37 million in 2016-17 prices.
This does not include overspends in rail due to rescheduled payments to Network Rail of £25 million or increased costs from the ORR due to indexation rates of £28 million.
(2011 consolidated accounts (link))
12 3. Compliance failures
This analysis excludes a number of accounting treatments – for example, overspends in revenue where accounting definitions changed and spending was reclassified from capital to revenue, or writing off student debt which is treated as an overspend in accounts.
It does, however, include a Compliance Failure with EU Infrastructure Rules:
The SNP failed to comply with a number of technical rules relating to EU grants for infrastructure projects, leading to a direct loss of funds.
In its auditing of the Scottish Government 2015-16 accounts, Audit Scotland said: “the Consolidated Accounts contain a provision of £14 million to reflect a permanent loss of grant to the Scottish Government which it cannot now recover”.
In 2016-17 prices, that is £14.21 million.
(Audit Scotland, The 2015-16 Audit of Scottish Government Accounts, September 2016, link).
13 4. Projects the SNP Government is partially responsible for
Major projects are not always funded up-front. Some are funded through payment mechanisms such as the Non-Profit Distributing (NPD) contract, where the private sector pays the up-front cost and the public sector reimburses them over the course of a long-term contract; or the Regulatory Asset Base, where Network Rail funds the up-front cost and Transport Scotland pays them a charge for the lifetime of the asset.
Ultimately, sooner or later taxpayers pick up the bill – and accounting conventions still require Scottish Government to show spending on NPD-style contracts on their budgets.
This analysis attempts to measure the overall cost of SNP governance and as such counts the total.
The same goes for loans. A loan from the Scottish Government is money that could have been used elsewhere – even before any uncertainty over the terms of repayment is included – and as such, any increase in the loan is a fair inclusion in an analysis of budgets that ended up larger than expected.
Finally, this section includes projects where investment, funding and/or governance is split between public funds and private investors and either the public share has increased or expected returns have not materialised; or where the nature of the project changed, resulting in an overall increased taxpayer contribution.
Project Overspend (£m) Over-Budget major Rail Projects 379 Edinburgh Sick Kids redevelopment 95.55 Failed Investments 32.05 Grants for V&A Museum, Dundee 9.6 TOTAL 516.20
Over-Budget Major Rail Projects: £379 million
An independent review of Scotland’s Major Rail Projects Portfolio by EY found a £379 million total increase in the forecast cost of five major projects, between June 2015 and September 2016. The Portfolio includes the Aberdeen to Inverness Improvement Project, the Edinburgh to Glasgow Improvement Programme, the Highland Mainline Improvement Project, the Shotts Electrification and the Stirling, Dunblane, Alloa Electrification (Ernst & Young, Review of the Rail Major Projects Portfolio, 21 October 2016, link)
Political direction and funding support for Network Rail in Scotland is devolved to the Scottish Government. Operational control is devolved to a local team within Network Rail (Network Rail, Scotland Route overview, link).
14 Transport Scotland is the Scottish Government’s body that oversees the transport network. Its own business plan states that it will ‘ensure Network Rail’s delivery [for 2014-2019]...reflects the output requirements of the Scottish Ministers’ High Level Output Specification’ (Transport Scotland Annual Business Plan 2014/15, link).
The SNP have previously sought to take credit when aspects of these projects were completed on time: for example, Derek Mackay issued a press release welcoming the Winchburgh Tunnel, part of the EGIP project, ‘completed both on time and within budget’; Keith Brown issued a press release on the completion of the Cumbernauld electrification ‘on time, on budget…as promised.’ ((Herald, 24 June 2015, link; Evening Times, 20 May 2014, link).
In his statement to the Scottish Parliament, Humza Yousaf listed a number of infrastructure projects which were overseen by Network Rail but that ‘in just four years, we have delivered’ (Official Report, 23 November 2016, link, emphasis added).
This sum therefore uses the Scottish Government’s own criteria to establish what can reasonably be considered their responsibility.
Edinburgh Sick Kids hospital redevelopment: £95.55 million
The Edinburgh Sick Kids hospital originally had £48.5 million of Scottish Government funding committed, in 2008. In 2016-17 prices, this is £54.45 million.
This was part of a wider funding package for up-front build costs, including property sales by NHS Lothian and charitable donations. It was expected to open in 2013 ‘at the latest’. The project was signed off by Nicola Sturgeon. (NHS Lothian, Healthlink, December 2008, link; Scotsman, 10 September 2008, link).
In November 2010, the Scottish Government announced that the project would instead be funded by the NPD model.
The Scottish Futures Trust estimate the capital spend on the project through this mechanism is currently £150 million in 2016-17 prices (Scottish Futures Trust, NPD pipeline, accessed 8 December 2016, link).
The difference between the central government share originally and currenrly expected for the build is therefore £95.55 million in 2016-17 prices.
This does not include the total costs of the project, which include payments for maintenance, payments for NPD partner and other costs. This total would be higher: the 2011-12 Scottish Government Draft Budget said that total capital spending on the project would be around £250 million; in 2016, NHS Lothian stated that the total cost over the lifetime of the project will be £432 million (Scottish Government Draft Budget 2011-12, link; NHS Lothian, 22 August 2016, link).
15 Failed investments: £32.05 million
Since 2014, more than £30 million in public funding has been written off after two failed investments in renewable energy companies.
Scottish Enterprise will see no return on its £15.2m investment in Aquamarine Ltd which went into liquidation last year after failing to make wave power commercially viable. In 2016-17 prices that is £15.43 million.
This followed the loss in 2014 of £16.3 million invested in Pelamis, another tidal energy firm. This was the biggest write-off in the agency’s 25 year history. In 2016- 17 prices that is £16.62 million.
(Herald Scotland, 8 October 2016, link).
V&A Museum, Dundee: £9.6 million
In 2012, the V&A Museum of Design Dundee was forecast to cost £49 million, of which £15 million was Scottish Government funding and the rest was covered by private donors and lottery funding. In 2016-17 prices, that is £15.78 million.
The cost increased to £80 million at the latest estimate in January 2016 – with work not started until 2015, the year it was originally supposed to open. The Scottish Government’s contribution is now at least £25 million, or in 2016-17 prices, £25.38 million.
(Evening Telegraph, 16 January 2015, link; STV, 16 January 2015, link; The Courier, 5 August 2016, link).
16