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7  The Wider Crown Estate

SOEs and Crown entities

Introduction

The last three chapters have focused quite strongly on Ministers and departments, the 'core' Crown. This chapter outlines the accountability requirements for the numerous government organisations outside the 'core' Crown, such as SOEs and Crown entities. Collectively, SOEs and Crown entities are responsible for substantial financial transactions, and employ more staff than departments.

State-Owned Enterprises (SOEs)

The State-Owned Enterprises Act established SOEs[35]to improve the efficiency of government trading operations, such as meteorological and postal services, railways, and electricity generation and transmission. A list of SOEs is presented in the Government's financial statements, along with summary information on financial results, assets and liabilities.

SOEs have the principal objective of operating as successful businesses. Accountability arrangements for SOEs focus on the Government's role as owner. All SOEs are registered as public companies and are bound by the provisions of the Companies Act 1993. Their chief executives are accountable to governing boards and the directors exercise their duties in the same way as the directors of public companies.

The board of directors of an SOE is accountable to the Shareholding Ministers for the performance of that SOE. The Ministers are shareholders, not the managers of the SOE. The boards have full responsibility for decisions on resource use, and for pricing and marketing the goods and services they produce. Most SOEs operate in deregulated markets and trade on equal terms with their counterparts in the private sector.

State ownership of SOEs itself provides no competitive advantages over private sector production. SOEs get no subsidies, pay dividends and cost products in the same way as their private sector counterparts. Statutory barriers to competition have been removed over the last two decades.

SOEs have the same powers as private sector companies to borrow. SOE borrowing does not have a government guarantee.

Any new capital investment by the Government in an SOE requires an appropriation by Parliament.

The role of Ministers is prescribed in the State-Owned Enterprises Act. Each SOE has two shareholding Ministers, the Minister of Finance and one other who is generally the Minister for SOEs. Having a Minister for SOEs with a separate portfolio helps the Government ensure SOE policy is applied consistently across sectors. The shareholding Ministers are responsible to Parliament. Their powers include:

  • appointing directors
  • commenting on SOEs' statements of corporate intent
  • tabling in Parliament SOEs' statements of corporate intent, half-yearly reports, and annual reports
  • ability to require dividends (but dividends are usually set by boards)[36]
  • monitoring performance (with the support of monitoring agents).

The Crown Ownership Monitoring Unit (located in the Treasury) provides advice that enables the shareholding Ministers to hold boards of SOEs and other Crown entity companies accountable for their performances in maintaining and enhancing shareholder value, and to meet the other objectives and requirements of the empowering Acts.

Statements of Corporate Intent (SCI)

The SCI is prepared by the board of directors who must supply it in draft form to the shareholding Ministers no later than one month before the start of each financial year. The Responsible Minister for the SOE can comment on the SCI and is required to present it to the House. The SCI covers a three-year period and includes the:

  • SOE's objectives
  • nature and scope of activities to be undertaken
  • ratio of shareholders' funds to total assets
  • accounting policies
  • performance targets
  • dividend policy and proposed distributions
  • the board's estimate of the commercial value of the Crown's investment.

Annual and Half-yearly Reports

Annual and half-yearly reports are prepared in accordance with the requirements of the Companies Act. The annual report and audited consolidated financial statements of an SOE must be delivered to the shareholding Ministers within three months of balance date. The Minister responsible for an SOE is required to present the half-yearly report, annual report and audited financial statements to Parliament.

Notes

  • [35]SOEs are listed in the First Schedule to the State-Owned Enterprises Act.
  • [36]Under legislation, Ministers can set dividends. This rarely happens. Boards normally set dividend levels.
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