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Is the situation also an indication of the relationship between the Scottish Government’s sponsorship teams and the individual boards? How can things get to the point where the Government has to escalate a board to stage 4? According to the Government’s description, that is when the Government has identified significant weaknesses that pose a risk to things such as quality of care, patient safety, institutional reputation and financial sustainability. What is your gut feeling as to whether the Government is maintaining adequate oversight of individual boards? Surely things should not get to that point before the Government intervenes.

I look forward to reading that. Do you have a sense of whether any of the external auditors are facing challenges in carrying out their duties given that, of the 14 territorial NHS boards, eight have required brokerage loans? That is surely a reflection on their ability to manage their ingoings and outgoings financially. There are various numbers kicking around about the overspend across many boards. It is hard to pinpoint exactly what the total is, but it is in the hundreds of millions for sure although, presumably, there will be variation from board to board. How comfortable is Audit Scotland that the external auditors are able to do their job to get a proper and accurate picture of the state of the finances of boards?

I appreciate that. Thank you.

I hear what you are saying—the idea is that, if a board’s level is escalated, that is a sign of success of the oversight from the sponsorship team, but it is also a sign of weakness or failure on the part of the NHS board. If a board gets to stage 3, I presume that it is put on a plan to remediate that and bring it back to stages 2 and 1 and be fully sufficient. If a board’s level is constantly being escalated, there is clearly a failure in the system—in the board, the leadership, the management team or the oversight and governance in the board. Where do things go wrong? What requires the Government to keep escalating a board’s level up and up?

Before the meeting started, we had a discussion to get our heads around some of the numbers in your report. Perhaps you could help to clarify our understanding of some of the top-level numbers.

One of the key facts on page 3 is that £785 million in capital has been committed for investment by the bank since it launched. However, exhibit 1 shows £1.1 billion in capital allocation from the Government over the course of the bank’s existence, much of which is made up of financial transactions, as you have said, and a smaller amount of resource allocation, of which there was zero in this year’s budget. Can you talk me through how the two numbers correlate? My reading of that is that the Scottish Government has allocated more than £1 billion to the bank but that, in total, the bank has invested around three quarters of a billion. Is there money that is sitting in a pot somewhere, waiting to be invested?

Thank you for that. Obviously, you can see my questions from afar, because you have pre-empted my next one, which was about the business investment group. That is very positive feedback. Thank you both.

The Public Audit Committee’s job is to scrutinise the spending of public money. Is there any sense or feeling in any of the work that you did that people are concerned that, due to the high-risk nature of the bank’s activities, it is playing fast and loose with huge sums of public money? By their nature, some of those businesses will fail. I presume that a percentage for that is factored into the business model. Given that public finances are extremely tight and that cuts are being made in many areas of public service, including vital lifeline services, people will be looking at a quasi-private bank with 80-odd people in it, spending billions of pounds of public money. Do you think that that is a concern?

Thank you for your opening statement, Auditor General. This is probably the first time since I joined the committee that you have given an opening statement that did not criticise the organisation concerned in any way, shape or form. I know that you always criticise respectfully and with an intensely academic view of the world, but is there a particular reason why the report did not pick up any governance, performance or operational issues at all?

The other big selling point of the bank is its so-called ability to unlock private investment. My understanding is that the bank would not regularly invest at the start-up stage of a business but, rather, at the so-called growth stage, although there is some ambiguity about what that means. In your report, you talk about £1.4 billion of funding

“attracted from other investors as a result of investment by the Bank”.

That is a bold statement to make. How do you quantify the idea of unlocking private capital? It is a bit like saying that you switch on a light bulb and mosquitoes come to it. Did you instigate that by switching the light on? It is easy to put that figure down as a metric of success because it is such a big number, but it must be very hard to pin down in real terms.

Thank you for that explanation. It is refreshing and nice to see a positive report that identifies good governance and operational practice. I am sure that other committee members will cover some of the areas that you raised, particularly around potential improvements to impact reporting and awareness of the bank’s activities.

It is interesting that, in your answer to me and in your opening statement, the areas of risk to the investment bank’s long-term success that you mentioned are external factors. The first area of risk relates to the bank’s mission to be a perpetual investment fund. You mentioned that the barriers to that are Treasury rules, as opposed to the bank’s own operations. The other external factor relates to the annual capital allocation of funds from the Scottish Government, which, again, is outside the bank’s control, albeit that the bank is owned by the Scottish Government. How will it be able to address those external factors?

Is there any evidence that the Scottish National Investment Bank is, in a sense, distorting the investment market by competing with private venture capitalists, private banks and other such forms of investment, or is it working well alongside—again, not competing with—other publicly funded organisations such as the British Business Bank and the National Wealth Fund, which are available UK-wide?