What are the SNP hiding over public project finance? Good luck with getting any answers
Brian Wilson
This week’s report on the Scottish Futures Trust raises questions long overdue for answers. It is unlike - ly these will be forthcoming since the organisation’s structures are designed to put them beyond Freedom of Information legislation.
That should encourage rather than deter persistence. Billions of pounds are being spent in ways which, according to the report by Jim and Margaret Cuthbert, may not be giving value for money and are damaging “organic growth” within the Scottish economy.
An extraordinarily powerful organisation, based around Edinburgh financial wizardry, has developed in the past decade with its current modus operandi, according to the Cuthberts, the diametric opposite of the principles on which it was to be based.
The Scottish Futures Trust was supposed to be about doing things differently from the ( Tory) Private Finance Initiative and ( Labour) Public Private Partnerships. Noisy denunciations of how private money funding public infrastructure had to be repaid over long periods paved the way for something different.
There had been a good case for these earlier initiatives, particularly when Labour came to office in 1997. There was a huge backlog of capital spending to be caught up on and the programme of school and hospital building was ( and remains) good news for every community which benefited.
Of course, the more projects funded in this way, the greater burden of debt repayment. The merits of each project depended on the deal. Without doubt, some very bad deals were done from the public perspective. The lifetime cost of projects was then held up as evidence of how the whole system was rotten.
I always thought this was disingenuous since nobody ever spoke about lifetime costs of conventionally funded projects where the contractor walked away ( or went bust) on completion, leaving the public sector with decades of remedial work to fork out for.
Under PFI/ PPP, there was an incentive to do the job properly, to pre- empt subsequent costs.
By the time the SNP took over Holyrood in 2007, denunciations of all that had gone before were in full swing and the Scottish Futures Trust was a manifesto commitment. It was to be a “non- profit- distrib - uting” model which was generally translated, loosely and inaccurately, into “not for profit”.
Since then, most capital projects in Scotland have continued to be funded with private money which has to be repaid over long periods – which may sound familiar. As the Cuthberts say: “Scottish Futures Trust financing, in effect, largely boils down to the public sector borrowing against future public sector income streams”. In other words, PFI, PPP, SFT.
Such was the rhetoric about “doing away with PFI” and the intro - duction of a “not for profit model”, that I doubt if the vast majority of people appreciate that any new public infrastructure is likely to have been built on exactly the same procurement principles that underpinned the previous initiatives.
The Cuthberts’ report raises detailed questions about whether the terms on which the SFT secures borrowing are as favourable as they could be. Common sense suggests it is a question which Holyrood, on behalf of the taxpayer, is entitled to ask. Strangely, however, it is one the SFT and its subsidiaries are protected from answering.
Another characteristic of SFT was to break Scotland into five “hubs”, grouping public sector projects together and appointing a lead “Hubco” in each area. More than £ 2 billion of projects have been channelled through this approach putting the anointed consortium in an extremely powerful position.
Yet, the Cuthberts note, most companies involved in Hubcos are headquartered outside Scotland, some are multinational construction firms and “several large companies have tier one roles for more than one hub”. Is it in Scotland’s interests to award such dominant roles to a small number of very large, non- Scottish companies? It seems like a question which merits at least an attempt at an answer.
This is where “organic growth” comes in. Over a 20- 25 year lifespan of the Hubcos, it would be reasonable to expect a few entrepreneurial Scottish companies to become big players, headquartered in Scotland. The SFT’S activities scarcely encourage that possibility.
At the same time, there is a steady transfer of skills from public to private sector. Local authorities and other public bodies used to do much of this work and employed the required expertise. Privatisation of public sector contracting has greatly reduced that competence, so who will protect the public interest when things go wrong? Last December, a case study on the new Dumfries hospital revealed that a project costing £ 212 million will attract £ 160 million in interest charges and fees. The consortium which owns it was charging the NHS £ 33 an hour for an electrician and £ 26 an hour for a painter. None of this suggests that the “not for profit model” was delivering what it was widely believed to say on the tin.
At that time, the trade union Unison said: “The funding model rolled out by the Scottish Government is nothing other than a reworking of the PFI with zero transparency and minimal accountability”. The report, the reader cannot help feeling, is reaching the same conclusion.
Jackie Baillie, Scottish Labour’s spokeswoman on the economy commissioned the Cuthberts’ report and says the “lack of transparency and accountability” now justifies a full review of how the SFT is operating. It is difficult to see why that proposal should be resisted.