New Report – Building Scotland’s Future Now: A new approach to financing public investment

Ben Wray

Report advocates combination of Scottish National Investment Bank and Scottish National Investment Company to lead new public investment strategy

A NEW public model for investment in Scotland’s infrastructure could be significantly cheaper and more sustainable than private financing, a new report by Common Weal has argued.

The report, ‘Building Scotland’s future now: A new approach to financing public investment’, can be read in full here.

The report has been timed to coincide with the launch of Protect Our Future, a new campaign for ending the use of public-private partnership (PPP) in Scotland and advocating sustainable alternatives.

The report outlines a detailed new design model for how the Scottish Government could boost public investment in Scotland and do so at significantly reduced cost. Key points include:

– The Scottish Government’s Non-Profit Distribution (NPD) model has been undermined by changes to accountancy rules, making NPD now cost ineffective in both the short and long-term. Combined with a total debt ceiling of 5 per cent of future revenue spending, the public-private partnership approach – whether PFI, NPD or Hub – is rapidly approaching the point of being obsolete.

– In 2007 the new SNP Government intended to establish the Scottish Futures Trust to replace PFI and “design, build, finance, operate, manage and own the facilities created”. One year later this plan was watered down to co-ordinate public-private partnerships. The report proposes returning to the spirit of the original idea, in the form of a Scottish National Investment Company, which would lead the Scottish Government’s public investment strategy.

– Additionally, whereas the Scottish Government has tight restrictions on its borrowing capacity by Treasury rules, local authorities do not. Currently, local government’s investment potential is restricted by unsustainable debts to the private sector, especially in the form of ‘Lobo’ loans. A Scottish National Investment Bank could provide long-term, low-cost loans to local authorities for investment, as could the creation of local authority bonds.

– The combination of a Scottish National Investment Bank providing loans to local authorities and a new Scottish National Investment Company to replace SFT could create a dynamic new public investment relationship between Scottish Government and local authorities to the mutual benefit of both. Local authorities would borrow the money and the Scottish National Investment Company would provide free planning, legal, construction and design services. This would be a new public-public partnership model (see graphic below).

Co-author and Head of Policy at Common Weal, Ben Wray, said of the report: “Whether it’s PFI or the Scottish government’s private finance model, the public-private partnership model of investment in Scotland’s schools and hospitals no longer has any value for taxpayers. It’s far too expensive and is a burden on the public-sector now and in the future. UK Government austerity is bad enough; reducing the budget further through excessive debt repayments is self-inflicted damage.

“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 PPP. Through establishing a Scottish National Investment Bank and a Scottish National Investment Company, Scotland can massively boost public investment in Scotland, supporting the economy and the public-sector. 

“Every pound saved on the building of public infrastructure is a pound extra that could be spent on teachers and nurses. We hope the Scottish Government and local authorities take a close look at our proposal as the Council elections near.”

Authors: Iain Cairns, independent researcher; Christine Cooper, professor of Accounting and Finance at the University of Strathclyde; Andrew Watterson, professor and head of the Occupational and Environmental Health Research Group at Stirling University; and Ben Wray, Head of Policy at Common Weal.