‘Wonga rates of interest’ charged on cost of public building projects

Taxpayers in Scotland are being hit with “Wonga rates of interest” on the cost of multi-billion-pound schemes to build schools and hospitals, it has been claimed, amid fresh concerns over the Scottish Futures Trust (SFT).

The SNP government introduced the flagship SFT to reduce the cost of major public building projects, but new research published yesterday shows it may be as bad as the Private Finance Initiative (PFI) schemes it replaced.

The claims were rejected by the body that oversees billions of pounds to fund public construction projects in Scotland. A government spokesman insisted the report by economists Jim and Margaret Cuthbert contained a “large number of flaws” and disputed the interest levels on the debt.

The SNP introduced the SFT in 2008 in an effort to ensure a better deal for taxpayers, but yesterday’s report – entitled Scottish Futures Trust and Hub Activities – raises questions over the “long-term financial sustainability”.

The former civil servants hit out at the “lack of transparency” surrounding project costs.

About £5 billion has been spent on building projects over the past decade and “senior debt” from banks fund the lion’s share of the finance. Mr Cuthbert said an interest rate of about 5 per cent on this can be inferred.

“That looks relatively high compared with what the rate used to be on projects in the old PFI deals before the financial crash,” he said.

The SFT insists the interest level is closer to 4 per cent, but this comes as bank inter-lending rates (Libor) have dropped to about 0.5 per cent.

Mr Cuthbert added: “There’s worries about whether the deal we’re getting on senior debt is actually value for money, but the important thing is we should jolly well know what we’re getting.”

Labour is now calling for a review of the way SFT projects operate in Scotland. The report was commissioned by Labour, but the Cuthberts insist that it is politically independent.

Many SFT projects still operate a Pfi-style approach to financing. Private funding from banks and private equity firms provides the upfront costs of building mainly schools and health centres under the scheme. The debt is later repaid by taxpayers. This technique has helped provide a new generation of Scottish schools in recent years, including the £35m James Gillespie’s High School in Edinburgh.

Labour’s economy spokeswoman Jackie Baillie said the estimated 5 per cent bank debt that accounts for about 90 per cent of the debt on these projects “isn’t good value for money”.

She said: “It’s a bit like if you’re going for a mortgage, you’re going with Wonga rates of interest rather than going to the bank, which would have much cheaper lending.”

The Scottish Government said the SFT had achieved a total of £923.7 million in savings and benefits.