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Good morning, permanent secretary and witnesses.

To start, I would like to look at the macroeconomic state of affairs that is reflected by the consolidated accounts. The consolidated accounts give us a better understanding of the state of the Scottish Government’s finances and its three main sources of income. Obviously, the block grant is outside the Scottish Government’s control, but the other two sources—that is, borrowing and devolved taxation—are within the control of ministers.

Will you give an overview of whether you are content that the decisions being made in the two areas that are under the Scottish Government’s control are being taken in such a way as to maximise the potential income that is available to ministers and therefore translates into their budget spending decisions?

Thank you for that comprehensive answer. There is quite a lot in there, so I will pick out some of the areas that you have just mentioned.

You talked a little bit about spending decisions as a result of further devolution. This committee, other parliamentary committees and Audit Scotland have noted that, with that further devolution, those decisions have a further financial cost to the Government. As we have seen in the analysis of budgets, they are also often made at the expense of other portfolios. For example, the social security spend is rapidly increasing to the point at which it might reach par with the health and social care budget, which is a new phenomenon. However, it is entirely unclear whether the variance in devolved taxation levels in Scotland compared with other parts of the UK is adequately funding the spending policy decisions that ministers are making. Are we therefore looking down the barrel of the supposed black hole that people talk about where spending decisions are uncontrollable and unfundable? Where does the money come from if not from the block grant? Does it come from higher borrowing or higher taxation?

I guess that we are looking for some comfort that those decisions are being looked at in the round.

What I cannot get my head around is that there is still headroom, which means that ministers have had—and still have—the ability to borrow more if they wish to. In the financial year 2023-24, for example, the Scottish Government borrowed £300 million to support capital projects, which was less than the £450 million that was initially outlined in the budget, so there was significant underborrowing, so to speak. At the same time, there was a mid-year review into capital investment that led to a number of projects not proceeding.

The public will look at that and say, “You have had headroom to borrow cash, yet at the same time there is a freeze on capital investment in much-needed projects—for example, in the national health service or in other infrastructure projects”. The public will not understand why such projects are not going ahead when, at the same time, ministers are not borrowing the cash that is available to them. How do you marry those two things together?

Good morning, Auditor General and guests. Thank you for your opening statement.

Your report paints quite a stark picture of the long-term viability of the yard. You mention in points 1 and 2 of your key messages that there are significant risks and uncertainty around the yard’s long-term financial sustainability—a point that you have just reiterated. Could you elaborate on why you have come to that conclusion?

Mr Boyd, one of the things that it would be very helpful for us to understand is whether the draft budget line of £47.9 million includes or excludes any of the additional £14.2 million that was announced separately for investment. That might be a question for ministers rather than for you, but I presume that you looked at that in the whole anyway.

Indeed, and those are questions that we can ask through due process.

You talked a little about the business plan and some of the assumptions that it makes about securing other work. Obviously, none of us wants to prejudice those decisions in any way, but we know that there is that potential, which was very much part of the plan, and investment is relevant to that.

Was there was any evidence of any other business outside of the small vessel replacement programme? Did you, in any of your auditing, come across any presentations or disclosures from the business team at the yard about other business that it was seeking? Was it commercially sensitive and so the team was unable to disclose it? Obviously, as it is a publicly owned and publicly funded business, one would hope that there would be an element of transparency there. Is it the case that all the eggs are simply in the one basket of the small vessel replacement programme? If that were not to go ahead, where would that leave the yard?

The five-year business plan is predicated on the award of the small vessel replacement programme, so a significant risk would be posed to the plan and, de facto, the long-term future of the yard if that award was not granted to Ferguson Marine. If it goes elsewhere, there is very little outside of that to underpin the running costs and keep the yard going at its current rate with the amount of people who work there. Are all the eggs—not all of them, but most of them—in that basket, and does that pose a risk?

That is helpful. Can we drill into some of the numbers that sit behind the conclusions that have been drawn? It is probably worth saying for the record that no one is comfortable with talking about the yard in this context. However, we are reflecting on what is in the section 22 report, so we have to talk about it.

When the report was issued, it was your understanding that, at the time, there was no financial underpinning from Government for the year 2025-26. However, since then, a draft budget has been produced, in which a budget line is allocated to FMPG. Can you perhaps talk me through what your understanding is?

Let us assume that the number in the draft budget is the final one. It might change, of course, but for the purposes of today’s meeting, let us work with what we have in the public domain. Is it your understanding that that is money that has been allocated for the next financial year by the Government to keep the yard on its feet and to fund operational costs? Is it for staffing costs? Does it include any investment or upgrade allocation? Alternatively, in your understanding as an auditor, is that money simply for finishing the job of completing the second vessel that the yard is still responsible for? From reading the papers, it is a bit unclear how we follow that money.

I will go back to that issue separately, but, before we do so, let us look at page 8 of your section 22 report, where you make some assumptions. I am trying to get my head around the fact that, for the year 2025-26, there will be a number of variables.

How much money will be required to keep the doors open, to keep the staff there and to keep the yard functioning as a going concern for that financial year? That will come at a cost, and there will be a number associated with that—presumably, there will also be a cost to finish the Glen Rosa, either separate to or included in that number. Additional moneys could be required, for example, for capital investment to upgrade infrastructure in the yard—technology, machinery and so on—to secure future business. From reading the papers, it is not clear to me whether what is in the draft budget for 2025-26 will cover all that. That is where I am looking for risk. Perhaps that is a question that you do not know the answer to.

In essence, you are making that assertion because the management and the leadership team at the yard have made that assertion—you are not making an external judgment on the yard based on the evidence that you have been provided with, but repeating what they are saying in their own audit of the business.

There is a lot of auditing legalese in the report—you talk about disclosures and points of emphasis and so on. What effect does it have on the business when directors make such announcements? Is there a legal necessity for directors make such a disclosure in the reporting of the accounts? It is a profound announcement, given that it is such a big business.