Friday, 25 April 2008

PFI? Pfwah! Give us the Scottish Futures Trust I say!

How much does Scotland waste on PFI/PPP every year? £500 million!

Yup, half a billion quid - the Edinburgh tramline every year (£508 million for a tramline? With their reputation?). Ridiculous! It's a waste of public money.

Don't take my word for it - ask some folks with an opinion, Unison, the public sector union, for example. I especially recommend the publication At What Cost?

Don't trust Unison? What about Thomas Blaiklock, PFI/PPP consultant who says
given the current state of the NHS as a public service organisation, PFI/PPP is a diversion of scarce and expensive resource

Still not convinced? What about Nick Minchin, Australian Minister for Finance under John Howard? Academics perhaps? Professor John Loxley of the University of Manitoba, or Hellowell and Pollock?

Then there's the Chartered Institute of Public Finance Accountants, followed swiftly by Architecture and Design Scotland, who are not all that far ahead of the Smith Institute.

I recommend the Smith Institute paper for the delightful quotes:
a broad consensus is forming that the PFI process is breaking down, and the very benefits that it was meant to deliver – greater competition and innovation – are increasingly being undermined. - Denise Chevin, editor, Building Magazine
Despite the successes of the private finance initiative so far, contracts are still too expensive, too time-consuming and insufficiently contested. The root causes are identified as public-sector resource constraints, poor time management and insufficient attention to financing. While the Treasury is experimenting with new funding approaches, and the public sector partner must become involved in financing decisions at an earlier stage, it is perhaps also time for banks to reassess the creditworthiness of PFI projects. - Adrian Bell, Chairman of Royal Bank of Canada Europe Limited

Setting aside the politics, at initial financing of a project, the taxpayer is taking the interest rate and structural risks inherent in the funding package that is negotiated between the private sector and its bankers – risks that are magnified under typical PFI contracts, given their length. - Bell

Some projects have also suffered from an inability of the public sector sufficiently to identify and prescribe its principal requirements – partly because some requirements do not lend themselves to the PFI structure of prescribing outputs, but also because of limitations of resource and expertise. - Jonathan Inman, Partner at Linklaters

Why, outside the demands of the public-sector borrowing requirement and the necessary risk transfer, are we entering into 35-year contracts for services? It simply is not something that happens in the private sector. Every routine commercial lease has an early break clause, without the requirement to go through a whole series of hoops around performance issues. - Peter Dixon, Chair of the Housing Corporation and of University College London Hospitals NHS Trust

we have to be able to change as service requirements change and the PFI contract, by its very nature, is arthritic. - Dixon

So what's the SNP's alternative? We came into Government promising to provide a range of procurement options for the public sector which would crowd out PFI and PPP.

There's a hospital in Glasgow which will be built under traditional procurement - £852 million which would have cost £4.2 billion under PFI/PPP.

47 school building projects have been approved by the SNP Government over the past year - 14 of them on an NPD (non profit distributing) model. More than 250 schools will be built over the lifetime of this Parliament.

There's £11 billion of infrastructure investment planned, and there's more to come.
  • That NPD part of school building is a pivotal underpinning part of the Scottish Futures Trust. Money which under PFI / PPP is siphoned off as a return on equity will remain within the public sector and will be recycled into other projects.

  • Working as a central funder and promoter, the SFT will be able to provide the support and expertise that PFI/PPP has stripped out of the system.

  • Spreading the funding across many more projects means the finance will be cheaper.

  • The SFT will draw money in from a range of sources - including bond issues - minimising risk for the public purse and the finance market.
Who thinks it's a good idea? Lots of people. You can read the resposnses to the consultation on the Government's website at

Law firm Anderson Strathern:
The public sector may be more willing to seek and rely on expertise and support from a public body who was perceived to understand and represent the public sector's interests. The Lawyers think that in addition if SFT is able to borrow at a more commercially advantageous rate than the private sector this would facilitate better value for the public sector.

Architecture and Design Scotland:
As our recently published Annual Report sets out we do not consider that Scotland is getting the best value from new developments in the built environment. We therefore welcome the initiative to develop a better way of funding infrastructure investment and see the consultation on the role of a Scottish Futures Trust as a timely opportunity for the Scottish Government to bring design quality to the fore in public procurement

The BMA:
There is a perception that private sector project management adds efficiency to major capital developments. This has yet to be fully demonstrated and is often no more than an article of faith. The theory is that the management and other benefits brought by the private sector can outweigh higher financing costs. The SFT arrangements seem to have the capacity to deliver the expertise without the consequent excess financing costs.

The SFT, as an alternative method of capital investment, may have potential benefits such as providing a centre of expertise, prioritised investment across the whole of public sector, co-ordinated borrowing and reduced lead times for progressing projects.
The Society of Local Authority Chief Executives and Senior Managers:
An apparent advantage of the agreement with the Scottish Futures Trust would be the potential for a larger support base for public bodies.

It's clear that the SNP Scottish Government is on the right track. Let's not waste any more public money on Labour's failure.

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