General

This section, together with section 66 put in place arrangements for short-term borrowing by the Scottish Executive to cover deficits or to provide a working balance in the Scottish Consolidated Fund. Section 66 deals with the circumstances under which the Scottish Executive may borrow from the Secretary of State and arrangements for repayments. This section deals with lending by the Secretary of State of such sums as are required by him for making loans under section 66.

Parliamentary Consideration

Details of Provisions

Subsection (1) provides that the Treasury may issue to the Secretary of State, out of the National Loans Fund, the sums required by him for making loans under section 66. The Treasury alone can operate on the National Loans Fund. The effect of this subsection is to confer the power on Treasury to issue sums to cover the shortfall in funding or to provide a working balance in the Fund referred to at section 66. Such borrowing will be from the National Loans Fund only.

Subsection (2) provides that the aggregate outstanding of principal sums borrowed under section 66 must not exceed £500 million.

Subsection (3) provides that the Secretary of State may by order made with the consent of Treasury substitute for the amount specified in subsection (2) such increased amount as may be specified in the order. This will enable the Secretary of State to increase the amount from time to time, for example, to keep pace with inflation or to meet unforeseen circumstances. Further provision about the making of subordinate legislation is to be found in sections 112 to 115 and Schedule 7.

Subsection (4) provides for sums received under subsection 66(3) by the Secretary of State to be paid into the National Loans Fund.

SECTION 68: Borrowing by public bodies

Purpose and Effect

The purpose of this section is to ensure that if a member of the Scottish Executive lends money to a body established under any enactment, the rate of interest on the loan is not less than the lowest rate determined by the Treasury in respect of similar loans made out of the National Loans Fund on the day the loan is made. In addition, it provides that public bodies shall not borrow under a power conferred by virtue of an Act of the Scottish Parliament in a currency other than sterling without the consent of the Scottish Ministers given with the approval of the Treasury.

Parliamentary Consideration

Details of Provisions

Subsection (1) provides that if a member of the Scottish Executive lends money to a body established under any enactment (which includes an Act of Parliament or an Act of the Scottish Parliament or any subordinate legislation under such Acts), the rate of interest on the loan shall not be less than the lowest rate determined by the Treasury under section 5 of the National Loans Act 1968 in respect of similar loans made out of the National Loans Fund on the day the loan is made.

Subsection (2) provides that a body established under any enactment shall not, in pursuance of a power conferred by virtue of an Act of the Scottish Parliament, borrow money in a currency other than sterling except with the consent of the Scottish Ministers given with the approval of the Treasury.

SECTION 69: The Auditor General for Scotland

Purpose and Effect

The section establishes the office of Auditor General for Scotland.

General

Section 69 is one of three sections dealing with audit and accounting arrangements. Section 70 requires provision to be made by or under an Act of the Scottish Parliament for a number of matters relating to financial control, accounts and audit. Section 72 deals with accounts of sums received by the Secretary of State from Scottish Ministers under sections 66, 67 and 71.

The Public Finance and Accountability (Scotland) Act 2000 (asp 1) makes provision for the salary and terms of office of the Auditor General (section 13) and for his functions.

Details of Provisions

Subsection (1) provides that there shall be an Auditor General for Scotland who shall be an independent person appointed by Her Majesty on the nomination of the Parliament. The Scottish Executive has no locus in the procedure. The procedures for nomination for appointment and for removal of the AGS are set out in the Standing Orders of the Parliament.

Subsection (2) provides that no recommendation shall be made to Her Majesty for the removal of the Auditor General for Scotland unless the Parliament so resolves. If the resolution is passed on a division, two-thirds of the total number of members of the Parliament must vote in favour.

Subsection (3) provides that the validity of any act of the Auditor General for Scotland is not affected by any defect in his nomination by the Parliament.

Subsection (4) provides that the Auditor General for Scotland shall not, in the exercise of any of his functions, be subject to the direction or control of any member of the Scottish Executive or of the Parliament.

Subsection (5) ensures that the Parliament can place requirements on the Auditor General in relation to the preparation of his own accounts. Provision is made for this in sections 19(8) and 25 of the Public Finance and Accountability (Scotland) Act 2000 (asp 1).

SECTION 70: Financial control, accounts and audit

Purpose and Effect

This section provides that provision shall be made by or under an Act of the Scottish Parliament ("Scottish legislation") in relation to financial control, accounts and audit. The Scottish legislation must provide for:

preparation of accounts by the Scottish Ministers, the Lord Advocate and others to whom sums are paid out of the Scottish Consolidated Fund of their expenditure and receipts;

preparation by the Scottish Ministers of an account of the Scottish Consolidated Fund;

arrangements for audit and value for money studies by, or under the supervision of the Auditor General for Scotland;

access by auditors to such documents as may reasonably be required for the purposes of audit;

designated members of the staff of the Scottish Administration to be answerable to the Parliament (Accounting Officers);

the publication of accounts and reports on them in pursuance of the rules and for the laying of such accounts and reports before the Parliament.

General

Section 70 is one of three sections dealing with audit and accounting arrangements. Section 69 provides for the appointment of the Auditor General for Scotland. Section 72 deals with accounts of sums received by the Secretary of State from Scottish Ministers under sections 66, 67 and 71.

The matters for which section 70 requires Scottish legislation to make provision are contained in or under the Public Finance and Accountability (Scotland) Act 2000 (asp 1).

Parliamentary Consideration

Details of Provisions

Subsection (1) requires "Scottish legislation" (defined in subsection (9)) to provide for:

(a)     proper accounts to be prepared by the Scottish Ministers, by the Lord Advocate and by others to whom sums are paid out of the Scottish Consolidated Fund, of their expenditure and receipts;

(b)     the Scottish Ministers to prepare an account of payments into and out of the Fund;

(c)     the Auditor General for Scotland (established by section 69) to exercise, or to ensure the exercise by other persons of the functions described in subsection (2);

(d)     access by persons exercising those functions to such documents as they may reasonably require;

(e)     designated members of the staff of the Scottish Administration to be answerable to the Parliament in respect of the expenditure and receipts of each part of the Scottish Administration ("Accounting Officers"); and

(f)     the publication of Parliamentary accounts (defined in subsection (9)) and reports on such accounts and for the laying of such accounts and reports before the Parliament.

Subsection (2) defines the functions that the Auditor General or auditors are to exercise as follows:

(a)     issuing credits for the payment of sums out of the Scottish Consolidated Fund;

(b)     examining, certifying and reporting on parliamentary accounts;

(c)     carrying out examinations into the economy, efficiency and effectiveness with which the Scottish Ministers and the Lord Advocate have used their resources in discharging their functions; and

(d)     carrying out examinations into the economy, efficiency and effectiveness with which other persons determined under Scottish legislation to whom sums are paid out of the Fund have used those sums in discharging their functions.

These functions broadly mirror those of the UK Comptroller and Auditor General in relation to UK expenditure.

Subsection (3) states that standing orders shall provide for the consideration by the Parliament of accounts and reports laid before it in pursuance of subsection (1)(f). The Standing Orders of the Parliament make provision for the Audit Committee to consider and report upon such accounts and reports.

Subsection (4) allows "Scottish legislation" to make further provision to ensure that those who receive money from the Scottish Consolidated Fund are accountable for its use. In particular it allows for accountability for those who receive sums indirectly from the SCF, such as bodies who receive grants from the Scottish Ministers.

Subsection (5) provides that where functions specified in subsection (2) are exercised by persons other than the Auditor General, then those persons are not to be subject to the direction or control of any member of the Scottish Executive or of the Parliament.

Subsection (6) provides that Scottish legislation may not require any cross-border public authority to prepare accounts if separate legislation requires the preparation of accounts and the examination etc. of these accounts by the Auditor General for Scotland, the Comptroller and Auditor General or a person appointed by either of them. This will apply in the case of bodies such as the Forestry Commission, where existing accounting and audit arrangements have been adapted by orders under section 89 (S.I. 1999/1747 and 2000/746).

Subsection (7) provides that Scottish legislation need not require the Auditor General for Scotland to examine his own accounts. It is open to the Parliament to specify alternative arrangements.

Subsection (8) provides that this section does not require Scottish legislation to impose any requirement which is imposed by any other legislation. For example, if an enactment already provides for preparation of accounts or for access to documents, it is not necessary for Scottish legislation to duplicate it. This is intended to avoid unnecessary, and potentially confusing, double legislation.

Subsection (9) defines the terms "Parliamentary accounts" and "Scottish legislation" for the purposes of this section.

SECTION 71: Existing debt

Purpose and Effect

The purpose of this section is to make provision for the repayment to the Scottish Ministers of any outstanding loans made by the Secretary of State from the National Loans Fund before the passing of the Scotland Act. The section defines the loans caught.

In addition it provides that all amounts to be received by the Scottish Ministers in repayment of principal of outstanding loans covered by this section are to be treated as advances made by the Secretary of State to the Scottish Ministers on the commencement of this section.

It also enables provision to be made for outstanding National Loans Fund (NLF) debt owed by the Registers of Scotland Trading Fund to continue to be repaid after devolution.

It further states that all repayments of principal and interest to the Secretary of State will be a charge on the Scottish Consolidated Fund.

Parliamentary Consideration

Details of Provisions

Subsection (1) defines the categories of outstanding loans covered by subsections (2) to (4). It provides that the section applies where:

(a)     power to lend money under a provision of a pre-commencement enactment was exercised by the Secretary of State;

(b)     the sums required by him for the exercise of the power were issued by the Treasury out of the National Loans Fund; and

(c)     the power is exercisable by the Scottish Ministers or would have been so exercisable but for the repeal of the pre-commencement enactment.

The outstanding loans covered are only those referred to above, i.e. they are confined to sums lent to public bodies in relation to devolved matters, that were issued by Treasury out of the National Loans Fund. Loans made out of monies provided by Parliament (voted loans) are not covered.

Subsection (2) provides that any amount payable by way of repayment or interest on the loan shall be paid to the Scottish Ministers and into the Scottish Consolidated Fund (instead of to the Secretary of State and into the National Loans Fund).

Subsection (3) provides for amounts equal to those which are to be received by the Scottish Ministers in repayment of principal to be treated as being amounts of advances made on the commencement of this section to the Scottish Ministers by the Secretary of State. This is to ensure that whilst outstanding loans made under the powers described at subsection (1) will be repaid to the Scottish Ministers by virtue of subsection (2), the sums received by the Scottish Ministers will be treated as having been loans to them made by the Secretary of State so that the Scottish Ministers have to repay the sums to the Secretary of State.

Subsection (4) provides that such advances shall be repaid to the Secretary of State at such times and by such methods, and interest on them shall be paid to him at such rates and at such times, as the Treasury may from time to time determine. This has a similar effect to section 66 in respect of new borrowing by the Scottish Ministers and ensures existing debts are treated in the same way.

Subsections (5) and (6) enable provision to be made for outstanding National Loans Fund (NLF) debt owed by the Registers of Scotland Trading Fund to continue to be repaid after devolution. This, together with further transitional provision made under the Act in relation to the Registers of Scotland, will allow the existing financial arrangements under which the Register of Scotland operate to continue with as little disturbance as possible until the Parliament itself legislated on its permanent financial regime (as it has now done in the Public Finance and Accountability (Scotland) Act 2000). Express provision is made in the Act dealing with the NLF debt as NLF matters are dealt with expressly in primary legislation under an agreement with the Public Accounts Committee.

The effect of the subsections is to empower the Secretary of State, with the agreement of the Treasury, to make an Order providing that:

the outstanding amount deemed to be owed by the Registers of Scotland Trading Fund to the NLF will become a debt owed by the Scottish Ministers to the Secretary of State;

the Scottish Ministers shall repay the loan, with interest, on the same conditions as the Trading Fund would have been obliged to;

the amounts required to make these payments will be a charge on the Scottish Consolidated Fund; and

the sums so received will be paid into the NLF (by the Secretary of State).

Orders under this power are subject to negative resolution procedure in the House of Commons. This power was exercised in making the Scotland Act 1998 (Transfer of Borrowing of the Registers of Scotland Executive Agency Trading Fund) Order 1999 (S.I. 1999/1596).

Subsection (7) provides that sums required to be paid under subsections (4) or (6) shall be charged on the Scottish Consolidated Fund. The effect of this is to allow the payments to be made without the need for the approval of the Scottish Parliament under its appropriation and supply procedure to be provided by the rules under section 65(1)(c). This mirrors the arrangements for UK loans made from the NLF.

Subsection (6) provides that sums received by the Secretary of State under subsections (4) or (6) shall be paid into the National Loans Fund. This means that once repayments have been charged on the Scottish Consolidated Fund they are routed back to the National Loans Fund.

SECTION 72: Accounts of loans to the Scottish Ministers

Purpose and Effect

The purpose of this section is to provide for the accounting arrangements in respect of sums paid and received by the Secretary of State under sections 66, 67 and 71. It requires the Secretary of State to prepare an account of such sums, for each financial year, in a form and manner as the Treasury may direct.

It also provides for the audit arrangements. The account must be sent to the UK Comptroller and Auditor General within the prescribed timescale (see below) who shall examine, certify and report on the account. His report must be laid before each House of Parliament.

General

Section 72 is one of three sections dealing with audit and accounting arrangements. It deals with sums paid and received by the Secretary of State to and from the Scottish Ministers. Section 69 provides for the appointment of the Auditor General for Scotland. Section 69 requires provision to be made by or under an Act of the Scottish Parliament for a number of matters relating to financial control, accounts and audit.

Details of Provisions

The section provides that the Secretary of State must, for each financial year:

(a)     prepare, in such a form and manner as Treasury may direct, an account of sums paid and received by him under sections 66, 67 and 71; and

(b)     send the account to the UK Comptroller and Auditor General not later than the end of November in the following financial year.

In addition, the UK Comptroller and Auditor General must examine, certify and report on the account and must lay copies of it and his report before each House of Parliament.

PART IV: THE TAX VARYING POWER

SECTION 73: Power to fix basic rate for Scottish taxpayers

Purpose and Effect

This section provides that the Scottish Parliament may pass a resolution providing for the basic rate of income tax to be increased or reduced for Scottish taxpayers - by not more than three pence in the pound - from that determined by the UK Parliament. The increased or reduced rate will not apply to income from savings and distributions.

General

This section is the first of a set of sections dealing with the tax-varying power of the Scottish Parliament.

Section 73 allows the Scottish Parliament to pass a resolution varying the basic rate of income tax for Scottish taxpayers by no more than three per cent. Section 74 makes further provisions with respect to tax-varying resolutions, and section 75 defines the term "Scottish taxpayer".

Section 76 makes provision to take account of future changes to the structure of UK income tax. Sections 77 and 78 describe the accounting arrangements where income tax is increased or decreased for Scottish taxpayers. Section 79 permits the Treasury to make consequential subordinate legislation.

Parliamentary Consideration

Details of provisions

Subsection (1) describes the circumstances in which this section will apply. It applies where income tax is charged for any tax year and the Scottish Parliament has passed a resolution varying the basic rate of income tax for Scottish taxpayers by no more than three pence in the pound. The variation must be by a whole number or half of a whole number. Subsection (1) further provides that the section is subject to the conditions attaching to such tax-varying resolutions set out in section 74.

Subsection (2) provides that where the section applies, the basic rate of income tax determined by the UK Parliament for any tax year as it applies to the income of Scottish taxpayers shall be varied by the amount specified in the resolution.

Subsection (3) states that income from Scottish taxpayers does not include income from savings and distributions.

Subsections (4) and (5) provide that the section will also have effect where the charging of income tax or the determination of the basic rate for any tax year is given effect to by means of a resolution of the House of Commons under the Provisional Collection of Taxes Act 1968.

SECTION 74: Supplemental provision with respect to resolutions

Purpose and Effect

This section is entirely supplementary to the provisions of section 73 and sets out certain conditions attaching to tax-varying resolutions. In particular it provides that a resolution shall relate only to a single tax year commencing on or after the year 2000-01, and sets out by when the resolution must be passed to have effect.

General

The section forms part of the set dealing with the tax-varying power of the Scottish Parliament.

Section 73 allows the Scottish Parliament to pass a resolution varying the basic rate of income tax for Scottish taxpayers by no more than 3 per cent. Section 74 makes further provisions with respect to tax-varying resolutions, and section 75 defines the term "Scottish taxpayer".

Section 76 makes provision to take account of future changes to the structure of UK income tax. Sections 77 and 78 describe the accounting arrangements where income tax is increased or decreased for Scottish taxpayers. Section 79 permits the Treasury to make consequential subordinate legislation.

Parliamentary Consideration

Details of provisions

Subsection (1) is introductory.

Subsection (2) provides that a tax-varying resolution must relate only to a single tax year, and generally must be passed before the start of the tax year to which it will apply. But it cannot be passed more than 12 months in advance of that tax year. The subsection also provides that a resolution of the Scottish Parliament will have effect in relation to any determination of the UK basic rate by Westminster irrespective of whether the determination had been made at the time of the passing of the resolution. Thus the resolution of the Scottish Parliament may be passed in advance of the determination by Westminster. The intention here is to cater for a situation where the Scottish Parliament is dissolved or is in recess at the time the basic rate is determined.

Subsection (3) gives an exception to the rule that a tax-varying resolution must be passed before the start of the relevant tax year. Where the UK Parliament itself has not determined the basic rate for that tax year before 6 March in the preceding tax year, then the Scottish Parliament will have one month to pass a tax-varying resolution from the date the basic rate is determined.

Subsection (4) provides that, in a case where a tax varying resolution is passed after the beginning of the tax year to which it relates by virtue of subsection (3) that resolution will have effect from the start of that tax year.

Subsection (5) provides that only a member of the Scottish Executive may propose a tax-varying resolution. This accords with the precedent of the UK Parliament in relation to tax proposals.

Subsection (6) provides that the first tax year in which a tax-varying resolution may have effect is the year commencing on 6 April 2000. That is the first full tax year in which the Scottish Parliament will be in existence.

Subsection (7) provides that this section will also have effect where the basic rate is determined by means of a resolution of the House of Commons under the Provisional Collection of Taxes Act 1968.