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Experts call for inquiry into privately-financed public projects in Scotland Experts call for inquiry into privately financed public projects in Scotland
(about 1 hour later)
An expert report has warned about unjustified secrecy and poor value for money with more than 40 privately-financed schools, hospitals and roads in Scotland. An expert report has raised concern about unjustified secrecy and poor value for money in privately financed projects in Scotland.
The report by two senior economists said there was a pressing need for an inquiry into whether the fast-increasing use of private financing by Scottish ministries and their agencies was in the public interest. The report by two senior economists says there is a pressing need for an inquiry into whether the fast-increasing use of private financing by Scottish ministries and their agencies is in the public interest.
The latest Scottish government figures show that NHS executives, colleges, councils and transport agency officials have signed 42 contracts with private financiers and construction companies for projects ranging from secondary schools, GPs surgeries, a new blood transfusion service HQ to upgrading three motorways. The latest Scottish government figures show that NHS executives, colleges, councils and transport agency officials have signed 42 contracts with private financiers and construction companies for projects including secondary schools, GP surgeries, a new blood transfusion service HQ and three motorway upgrades.
Their construction costs £2.6bn but over lifetime will reach £7.6bn, due to 11.3% interest on borrowing; paying for maintenance contracts lasting from 25 to 30 years; and meeting hundreds of millions of pounds in management fees. Their construction cost a total of £2.6bn but over their lifetime the projects will cost £7.6bn due to maintenance contracts lasting from 25 to 30 years, management fees and interest of up to 11.3% on borrowing.
The study by Jim and Margaret Cuthbert, who have advised the World Bank and the OECD on public sector finance, disputes the Scottish government’s claims that the Scottish Futures Trust is efficient. The SFT is a quango that runs Scotland’s equivalent of the private finance initiative – a funding method for public projects that became widespread under the Blair and Brown governments.The study by Jim and Margaret Cuthbert, who have advised the World Bank and the OECD on public sector finance, disputes the Scottish government’s claims that the Scottish Futures Trust is efficient. The SFT is a quango that runs Scotland’s equivalent of the private finance initiative – a funding method for public projects that became widespread under the Blair and Brown governments.
Citing concerns that private lenders were given unduly generous deals by the SFT, the Cuthberts said: “On finance, [this] secrecy makes it impossible to tell whether the financing costs of hub projects are unduly high: but circumstantial evidence suggests that this is indeed the case.” Citing concerns that private lenders were given unduly generous deals by the SFT, the Cuthberts’s report says: “On finance, [this] secrecy makes it impossible to tell whether the financing costs of hub projects are unduly high, but circumstantial evidence suggests that this is indeed the case.”
“Overall, concerns like the above raise serious doubts about the extent to which the hub initiative is actually achieving value for money.” It adds: “Overall, concerns like the above raise serious doubts about the extent to which the hub initiative is actually achieving value for money.”
The projects encompassed by the Cuthberts’ report include new secondary schools which will cost taxpayers more than £100m each by the time their 25-year-long private contracts end, and a new bypass around Aberdeen which will cost £1.47bn over the next 30 years, a price which excludes tens of millions of pounds in additional spending by the councils involved. The projects covered by the Cuthberts’ report include new secondary schools that will cost taxpayers more than £100m each by the time their 25-year-long private contracts end, and a bypass around Aberdeen that will cost £1.47bn over the next 30 years – a price that excludes tens of millions of pounds in additional spending by the councils involved.
The Scottish government insists the SFT’s model of private financing is better and more cost-effective than traditional private finance initiative schemes – where the private sector pays the upfront costs of construction and then is paid back over decades by the state – introduced by previous Tory and Labour governments in Scotland. Those will cost taxpayers £22bn in high interest and maintenance charges, but include several schemes approved after Alex Salmond became first minister in May 2007.The Scottish government insists the SFT’s model of private financing is better and more cost-effective than traditional private finance initiative schemes – where the private sector pays the upfront costs of construction and then is paid back over decades by the state – introduced by previous Tory and Labour governments in Scotland. Those will cost taxpayers £22bn in high interest and maintenance charges, but include several schemes approved after Alex Salmond became first minister in May 2007.
The Cuthberts said the Scottish government’s claims needed to be checked independently but added until now, there had been no effective scrutiny or evaluation of these projects’ value for money. In a report commissioned by Scottish Labour, they said that despite the privacy surrounding SFT contracts, there was enough direct and circumstantial evidence to challenge claims they were value for money. The Cuthberts say the Scottish government’s claims need to be checked independently and point out that until now there has been no effective scrutiny or evaluation of these projects’ value for money.
There was evidence the private lenders were given generous deals by the SFT, paying them interest at rates much higher than the Treasury’s lender for public sector projects, the Public Works Loan Board. Very few of the companies designated as primary contractors or the banks lending them money were Scottish, which could undermine the country’s economy and private sector, the Cuthberts added. The report, commissioned by Scottish Labour, says that despite the privacy surrounding SFT contracts, there is enough direct and circumstantial evidence to challenge claims they are value for money.
It says there is evidence that the SFT gave private lenders generous deals, paying them interest at rates much higher than the Treasury’s lender for public sector projects, the Public Works Loan Board. Very few of the companies designated as primary contractors or the banks lending them money were Scottish, which could undermine the country’s economy and private sector, the report says.
In addition to the 42 projects which are underway, there are dozens of smaller PFI-type projects still in the pipeline expected to cost at least £1bn more overall. In addition to the 42 projects that are under way there are dozens of smaller PFI-type projects still in the pipeline, expected to cost at least £1bn more overall.
Audit Scotland, the public spending watchdog, has begun a formal inquiry into the SFT after it emerged the quango made serious errors when it designed the new private financing models covered by the Cuthberts report. Audit Scotland, the public spending watchdog, has begun a formal inquiry into the SFT after it emerged that the quango made serious errors when it designed the new private financing models covered by the Cuthberts’ report.
The SFT’s schemes breached strict European Union rules designed to stop governments from claiming that public sector building projects were not government assets because they were built and owned by private firms. That meant the building costs of many PFI projects had to be added to the government’s books. The SFT’s schemes breached European Union rules designed to prevent governments from claiming that public sector building projects were not government assets because they were built and owned by private firms. That meant the building costs of many PFI projects had to be added to the government’s books.
Investigations by the Guardian showed that this error meant that the Scottish government had to set aside about £932m to cover the building costs of five major projects, including the Aberdeen Western Peripheral Route bypass, three hospitals and the new blood transfusion HQ. The financiers for one of those hospitals, in Dumfries, south west Scotland, will earn £37.5m in interest for £24.2m in lending, at an interest rate of 11.3%. Investigations by the Guardian showed that this error meant the Scottish government had to set aside about £932m to cover the building costs of five projects, including the Aberdeen bypass, three hospitals and the new blood transfusion HQ. The financiers for one of those hospitals, in Dumfries, south-west Scotland, will earn £37.5m in interest for £24.2m in lending, at an interest rate of 11.3%.
In a similar case involving the project to redevelop the Royal Edinburgh psychiatric hospital, the Guardian and the Ferret website has now found its backers are charging 10.75% in interest for part of the borrowing needed for the first phase of the project. The companies involved in building, financing and maintaining it will earn £116m by 2042 on facilities which cost £38m to build. In a similar case involving a project to redevelop the Royal Edinburgh psychiatric hospital, the Guardian and the Ferret website have found that its backers are charging 10.75% in interest for part of the borrowing needed for the first phase of the project. The companies involved in building, financing and maintaining it will earn £116m by 2042 on facilities that cost £38m to build.
The devolved government defended its programme, insisting the SFT had produced £924m in savings and benefits since it was launched, without specifying what those were. The SFT allowed new facilities to be built more quickly than using its limited capital powers, a spokeswoman said.The devolved government defended its programme, insisting the SFT had produced £924m in savings and benefits since it was launched, without specifying what those were. The SFT allowed new facilities to be built more quickly than using its limited capital powers, a spokeswoman said.
She said Holyrood was given six-monthly updates on SFT projects, and it had been endorsed as efficient and effective by Holyrood’s finance committee. The SFT system “enable[s] 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,” she added. “They also balance future operational and maintenance risks between the public and private sector.”She said Holyrood was given six-monthly updates on SFT projects, and it had been endorsed as efficient and effective by Holyrood’s finance committee. The SFT system “enable[s] 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,” she added. “They also balance future operational and maintenance risks between the public and private sector.”