This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2017/oct/18/expert-report-calls-for-inq

The article has changed 8 times. There is an RSS feed of changes available.

Version 2 Version 3
Experts call for inquiry into privately financed public projects in Scotland Call for inquiry into privately financed public projects in Scotland
(about 1 hour later)
An expert report has raised concerns about unjustified secrecy and poor value for money in privately financed projects in Scotland.An expert report has raised concerns about unjustified secrecy and poor value for money in privately financed projects in Scotland.
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 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 including secondary schools, GP surgeries, a new blood transfusion service HQ and three motorway upgrades.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 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. Their construction cost a total of £2.6bn but over their lifetime the projects will cost £7.6bn due to maintenance contracts lasting from 25-30 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.
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.” 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 Cuthberts’ report cites concerns that private lenders were given unduly generous deals by the SFT. Referring to a group of SFT projects launched as the hub initiative by the Scottish government, the study 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.”
It adds: “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 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 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 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.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.
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.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.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 that are under way 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 a further £1bn overall.
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.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 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.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 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%. Investigations by the Guardian showed 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 headquarters. 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 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. 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 are 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 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 “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”, a spokeswoman said. “They also balance future operational and maintenance risks between the public and private sector.” The SFT “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”, a spokeswoman said.
“They also balance future operational and maintenance risks between the public and private sector.”
She added that Holyrood was given six-monthly updates on SFT projects, the system had been endorsed as efficient and effective by the Scottish government’s finance committee and had been given a “clean bill of health” by Audit Scotland, which has covered SFT projects in reports on general government spending.She added that Holyrood was given six-monthly updates on SFT projects, the system had been endorsed as efficient and effective by the Scottish government’s finance committee and had been given a “clean bill of health” by Audit Scotland, which has covered SFT projects in reports on general government spending.