Strategic commercial interventions - initiating companies in public ownership: standard operating procedures - part 1

Chapter 1: Defining The Public Bodies

To produce accurate national accounts, the Office for National Statistics (ONS) determines a body's national accounting classification (central government, local government, etc.), based on whether an organisation is public or private, and market or non-market. The difference between the public and private sectors is determined by where control over the organisation lies, rather than by “ownership” or whether the entity is financed from public funds. The ONS makes the final decision on the classification type of new bodies from evidence submitted. Further information can be found in the UK economic statistics sector and transaction classifications: the classification process.

1.2 Public Bodies

For this guidance, the term 'Scottish public body' describes the range of public bodies which have a direct relationship with SG or Scottish Parliament and for which they are responsible. For an overview on establishing public bodies from a SG context, the Public Bodies in Scotland guide outlines the classification of bodies in Scotland and their accountability arrangements. An extract comparing public corporations and NDPBs follows at Annex A.

1.3 Legal Form

Public corporations and NDPBs are not alternatives to one another as the two are not mutually exclusive, indeed some public bodies are incorporated as companies. These descriptors refer to different attributes of an organisation. ‘Public body’ signifies that government controls the general corporate policy of the organisation, while ‘company’ signifies that it is incorporated under and is subject to the Companies Act 2006. Nonetheless, the standard practice of setting-up, governance, financial management, sponsorship, accountability, and reporting requirements per SPFM, ONS and Companies Act / Companies House will apply to both public corporations and NDPBs.

The SPFM’s Business Investment Framework notes intervention in a business always carries the risk of altering the perceived or actual balance of control over its operations. For example, where Ministers take an equity stake, this might result in achieving effective control even without a majority shareholding. It is therefore important to consider whether government intervention and/or support might alter the classification status of an entity in the National Accounts from the private sector to the public sector. Any such change is likely to carry significant budgetary implications because of the way in which its financial transactions are subsequently classified.