SFT - Slight Financial Tweaking Gives us PFI-Lite |
Dave Watson |
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Prior to the May 2007 Scottish elections, we were all encouraged to believe that, under the SNP, PFI/PPP would be dead in the water thanks to the flagship SFT proposal to raise money using government bonds. Few non-experts can follow the minutiae of the workings of the Private Finance Initiative (PFI) and other forms of Public Private Partnerships (PPP). Yet most people understand perfectly well that these policies have run up disastrously expensive credit card levels of debt on schools and hospitals in Scotland. It is a scandal that the politicians who signed off so many multi-million pound projects did not do more to try and decipher the intricacies of contracts that have allowed massive profiteering. It’s not as if they weren’t warned. Unfortunately, the new Scottish Futures Trust (SFT) will not provide the much-promised alternative to PFI. Prior to the May 2007 Scottish elections, we were all encouraged to believe that, under the SNP, PFI/PPP would be dead in the water thanks to the flagship SFT proposal to raise money using government bonds. Instead the Scottish Government is effectively saying, ‘steady as she goes’ with much of the previous administration’s PFI/PPP policy. Ministers are trying to sell Slight Financial Tweaking and the prospect of local authority bonds as a major improvement when everyone can see that their emperor has no clothes. What we are being given is PFI-lite, with promotion of the so-called Non Profit Distributing model of PPP and a refusal to rule out ‘traditional’ PFI where the risks involved in a project are exceptionally high. The proposals actually extend PPP into areas such as housing for the first time in Scotland. And the SFT will progress the introduction of hub, the Scottish equivalent of the UK Government’s Local Improvement Finance Trust (LIFT) form of PPP. This will see private companies invited to bid for contracts providing a guaranteed stream of work building and then leasing out new health centre premises and other local community facilities. This is despite the fact that LIFT was criticised by the House of Commons Public Accounts Committee in 2006 for problems such as high rents, excessive costs in early schemes, inflexibility in arranging for minor repairs and no meaningful evaluation of value for money. The Scottish Government is embracing all this at a time when even more evidence is emerging of how much PFI has ripped off taxpayers. In May the Sunday Herald reported on: “PFI: the £50 billion scam.” Economists Jim and Margaret Cuthbert analysed official documents released under Freedom of Information laws and found that: “Equity of just £100 invested in rebuilding the historic Hairmyres Hospital in East Kilbride is projected to earn £89 million in dividends over 30 years. Half a million pounds equity in the new Edinburgh Royal Infirmary is expected to win dividends of £168 million.” Two days later, the SFT Strategic Business Case (SBC) was launched, but information on its workings remains sketchy. Incredibly, the document admits: "The details of how investment will be raised from the private sector has not been explored in any detail as part of this Strategic Business Case.” The widespread reaction was that the plans offer hardly any change. The Sunday Times headline said it all - “SFT or PPP, same difference.” BBC Scotland’s Political Editor Brian Taylor described the SBC as “a mite tentative”. Douglas Fraser, Scottish Political Editor of The Herald, commented that the SFT “looks ever ropier the more it is prodded”. He also asked: “At what point did the SFT become part of the Public-Private Partnership (PPP) ‘family’? We were told PPP was bad, and SFT would be good. It turns out PPP wasn't so bad. It was PFI that was bad, even though it is hard to find anyone who knows the difference between PFI and PPP. And now, it seems, there are very modest differences between the PPP and SFT.” Former Labour minister Andy Kerr, who defends PFI/PPP, likened the Government’s plans to renaming Windscale as Sellafield, or swapping one credit card for another. So what is being proposed? The SFT is to straddle the public and private sectors. A public sector Development and Delivery arm will be established properly in autumn 2009, with a shadow body starting initial work in 2008. SFT Development and Delivery will look in more detail at how the private sector arm will raise funds, in preparation for setting up SFT Finance and Investment as a private company in autumn 2010. The Scottish Government claims that £100-£150m of annual savings will be generated to invest in public infrastructure through “greater partnership, improved preparation and handling of projects, and better value finance - including the non-profit distribution model”, as well as a Scotland-wide municipal bond to fund future projects. It has conceded that it is not possible for the Scottish Government to issue bonds but wants councils to create a joint Local Authority bond issue that is on balance sheet. Questions have been raised about many of the proposals, including the legality of councils funding work outside their own boundaries, whether they would need permission from the Treasury or could go above council borrowing limits, which PPP currently can. The Scottish Government is confident the plans are legal, although they have still to be checked against European Commission rules on state aid and there is a continuing lack of clarity about the impact of the change next year to International Financial Reporting Standards. It is perhaps not surprising that Ministers have agreed to continue with PFI/PPP, given that the team that produced the SBC was led by Partnerships UK (PUK), with PricewaterhouseCoopers providing specialist financial support. (PUK is the government agency that assists PFI/PPP projects and is itself a PPP. It is majority owned by private firms, including Bank of Scotland, Serco and others active in the PFI market.) They could have “crowded out” PFI/PPP immediately, following UNISON’s plan in our 2007 At What Cost report. Instead Finance Secretary John Swinney says the idea of giving health boards prudential borrowing powers to access the Public Works Loan Board has been ‘parked’ for the foreseeable future. His list of the SFT’s objectives includes: UNISON’s key concerns are over the continuation of PPP using Non-Profit Distributing Models and over the lack of accountability and transparency compared to conventional funding, including in having a private company in charge of investment. NPD models retain higher borrowing costs. Private profit is still taken at the contractor level and the so-called risk transfer analysis still applies. This results in the same profiteering and inflexibility inherent in PFI. We are very sceptical that a private company can have a genuine public interest ethos. We do support amending the Scotland Act to give the Scottish Government borrowing powers similar to other devolved administrations around the world. And we welcome any review of existing contracts that seeks to reduce costs to the taxpayer. However, although the Scottish Government admits PFI/PPP has often led to extreme and unwarranted profits, it recently used the excuse of a £600 cost limit to prevent the Scottish Information Commissioner considering UNISON’s arguments that information withheld from contracts should be made public. Scottish Ministers should live up to their pledges of greater openness and publish all PFI/PPP business cases and contracts. Freedom of Information legislation should also be extended to cover private companies involved in PFI or future PFI-lite projects. The Scottish Government was right to conclude that public funding provides the best value for money for the massive new £842m hospital campus at Glasgow's Southern General site. That should also be the approach across Scotland. You don’t get anywhere by tinkering at the edges of a flawed policy. Ministers argue that they are curbing the previous excesses and in future there will be much tighter control. But that has been the constant claim from defenders of PFI/PPP. They provide an ever-updating list of excuses for why earlier projects had problems and argue that lessons have been learned and faults have been ironed out. What we need is an end to PFI/PPP before further billions are wasted. Dave Watson, Scottish Organiser, UNISON At What Cost and UNISON Scotland’s SFT consultation response are at
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