The Scottish Government is under increasing pressure to abandon its private finance schemes following revelations by The Ferret and The Guardian that they have blasted a £932 million hole in Scotland’s capital investment budget, whilst profiting private companies.
The Common Weal think tank is today joining with trade unions and campaign groups to launch a drive for a state investment company to replace the Scottish Futures Trust (SFT). Scottish ministers set up the SFT in 2008 to use private money to build schools, hospitals and other public projects.
A new report also urges the Scottish Government to set aside £1.35 billion from its capital budget over six years to create a Scottish National Investment Bank to fund future projects. A new model for public investment is an “urgent requirement” regardless of Scottish independence, it says.
A joint investigation by The Ferret and The Guardian revealed in December that Audit Scotland and the Accounts Commission are planning to examine whether Non Profit Distributing (NPD) schemes are “value for money”. SNP ministers introduced NPD schemes, overseen by the SFT, in place of previous governments’ discredited Private Finance Initiative (PFI) projects.
We reported that five NPD schemes – four major medical facilities and a road development – with a total capital cost of £932m would have to be counted as public rather than private expenditure. The schemes were no more than a “public relations repackaging” of PFI, critics said, though the First Minister, Nicola Sturgeon, insisted that they weren’t “a rip-off”.
Documents released under freedom of information law disclosed that one of the NPD projects, Dumfries and Galloway Royal Infirmary, would earn its private consortium backers – including the insurance group Aviva and the building firm Laing O’Rourke – £160m in interest and fees on a capital cost of £213m, from loans totalling £242m.
Now Common Weal has come together with two trade unions, Unison Scotland and Unite Scotland, as well as the New Economics Foundation, Debt Resistance UK, Jubilee Scotland and others to campaign for NPD schemes to be dropped. Scotland needs to adopt a cheaper, more sustainable and more ethical way of paying for public sector projects, they argue.
A report by professors from the University of Strathclyde and University of Stirling and other researchers contends that NPD schemes are “expensive in both the short and long term, negating any credible purpose as a financing strategy for public investment.”
The best estimates suggest that companies have made 12 per cent profits on NPD projects, the report says, adding: “The cost to the public purse is therefore considerably higher than if the government borrowed the capital to build the projects directly.”
It concludes: “For Scotland, whether it is heading towards independence or not, the need to build institutions for the future of the Scottish economy is essential. A Scottish National Investment Bank and Scottish National Investment Company could be two cornerstones of such a strategy, and could be introduced now.”
One of the report’s authors, Common Weal’s head of policy Ben Wray, argued that burdening Scotland with more expensive debt repayments would be damaging. “Whether PFI or the Scottish Government’s NPD, the public-private partnership model of investment in Scotland’s schools and hospitals no longer has any value for taxpayers,” he said.
“That’s why we are proposing a new public model of investment. This will also be a partnership but it will be between the Scottish Government and local authorities, and it will be much cheaper and mutually beneficial than public-private partnerships.”
The call for a Scottish national investment bank is due to be debated at the next SNP conference in March. A motion from the party’s branch in Angus argues that leaving economic growth and environmental protection “solely in the hands of our private banking and financial sector will be detrimental to present and future living standards of our citizens”.
Dave Watson, head of policy at Unison Scotland, wanted private finance schemes scrapped. “We need to urgently look at the prospects for ending existing contracts and using low public sector borrowing costs to replace expensive private sector debt,” he said.
The new campaign was to protect the future, according to Laurie Macfarlane, an economist from the New Economics Foundation in London. “By challenging the status quo and promoting viable alternatives for sustainable public investment, we can start to build an economy that puts the long term interests of society first,” he said.
The Edinburgh-based private finance critic, Jim Cuthbert, pointed out that it was not certain whether spending by a Scottish National Investment Bank would be classified as government spending. “It is essential that this point is resolved first, or it would not be worth proceeding,” he told The Ferret.
“This report deals with an area which is overdue for attention. The proposals would represent a very welcome shift away from financial engineering to real engineering.
The UK Labour leader, Jeremy Corbyn, has previously promised to establish a “Scottish National Bank under Scottish control”. It would have “£20 billion of lending power to deliver the funds to local projects and Scotland’s small businesses,” he said.
The Scottish Government stressed that it actively explored innovative funding mechanisms. “We are always receptive to ideas about improving Scotland’s economic performance and welcome this contribution to the wider discussion,” said a spokesman.
Ministers had enhanced the remit of Scottish Enterprise’s Scottish Investment Bank and announced plans for a £500m Scottish growth scheme. “Local authorities already have access to low interest rates through the Public Works Loan Board,” the spokesman added.
The SFT had delivered a cumulative total of £923.7 million of independently verified savings and benefits, he argued. “Projects with an estimated value of around £2.4 billion have been progressed to date through the NPD programme, creating and maintaining jobs and enhancing Scotland’s asset base.”
NPD schemes were an improvement on PFI schemes, the spokesman said. “They enable investment in public projects in Scotland to be brought forward more quickly than would otherwise be available through our capital allocation and limited borrowing powers. They also balance future operational and maintenance risks between the public and private sector.”