Pete Carson: Scotland’s dangerous dance with private finance

“At a time of global crisis, we need to work towards constructing a new model that doesn’t rely on private money, building an alternative solution for funding projects that can work to help tackle public financing issues internationally.”

Jubilee Scotland’s Pete Carson argues that the current global crisis reinforces the need for a new model of financing infrastructure that avoids the mistakes and dangers of private money

SCOTLAND once had a love affair with Private Public Partnerships (PPP), but the skyrocketing debt and negligence associated with them has left a sour aftertaste for many local authorities.

Introduced in the early 1990’s, PPPs – long-term contracts where the private sector designs, builds, finances and operates projects – made it easier for the public sector to get infrastructure off the ground. However, contracts have become skewed to be highly lucrative for the private sector, leaving many local authorities in debt and without public funds to support other services. Through PPP contracts infrastructure was developed quickly, but high interest rates and wild cost overruns have ensured that the taxpayer will be paying for it for years to come. 

Edinburgh has been centre-stage for disastrous PPP deals, with 17 schools built under a PPP contract closing for repairs simultaneously, after the side of Oxgangs primary school collapsed due to building flaws. Private investors and local politicians rarely face scrutiny when things go wrong under a contract like this, with many of the details hidden and locked under corporate confidentiality agreements. 

Audit Scotland released a report in January 2020 exposing the poor record that Scotland has with PPPs, with the Scottish government signing off on £9bn worth of privately contracted projects without fully understanding how the contracts worked. They paid little attention to how much profit investors would make over the 30-year lifespan of the contracts, with millions to be made from selling off debts to other investors, without any consultation with the people greenlighting these public projects. Taxpayers in Scotland are liable for a £30 billion legacy of payments between 1997 and 2042 and with COVID-19 putting the economy in a very uncertain place, that amount is expected to go much higher with inflation.

This form of profiteering was first exposed in the Panama Papers, with a vicious cycle of taxable income being hidden abroad from public coffers, before being repackaged and rebranded. It can be argued that tax avoidance contributes to the need for Private Financing as a whole, as money that should go to public funds is stashed away in tax havens before returning as private finance bonds, ready to be reinvested in the country, with interest of course. An offshore fund registered in a tax haven owned a 20 per cent stake in Edinburgh’s badly built schools, being able to profit on the back of a disaster.

It is becoming a trend for Edinburgh, as money earmarked for high profile PPP contracts and their maintenance was sent overseas, leaving the city with shoddy, unfinished buildings that cost a fortune. Currently the NHS Lothian is paying out £1.4 million every month for the new unusable Sick Kids Hospital with little oversight of how much of that money is going back into the public purse. The hospital hasn’t opened because of design flaws that make it uninhabitable, yet there’s nobody to take to task, nobody to answer questions why these mistakes have happened.

There has been a loss of accountability in our public services, because when things go wrong and there is public outrage, local councils can be just as much in the dark about why.

NHS Greater Glasgow and Clyde have decided to take legal action against contractor Brookfield Multiplex for the construction of Queen Elizabeth University Hospital, which opened in 2015 with many severe issues, leading to deaths in the children’s ward due to contaminated water. Built by the same company behind Edinburgh’s own Sick Kids Hospital, it appears no lessons were learned by the contractors and caretakers during the construction of their second major hospital in the central belt. 

An enquiry has been announced into the failings of both hospitals, but it is already clear that when private organisations look to make profit take on the building up of public services, they cut corners, raise prices and ultimately can cost lives. In the wake of the COVID 19 outbreak, only time will tell if any of these hospitals have been able to serve the needs of the people, who rely on these services to support them through a period of uncertainty. 

If our history with PPPs was anything to go by, surely we would have learned from our mistakes by now? In late 2019, Holyrood approved the Mutual Investment Model (MIM) which claims to be different to its predecessors, but it’s nothing but a PPP with a new coat of paint to get around new commissioning rules. Audit Scotland have recommended that Holyrood suspend all MIM projects stating that “The financing costs associated with MIM are likely to be more expensive than alternative options for capital investment, such as capital grants, borrowing and some forms of innovative financing.” 

With MIM putting the government at a higher risk of loss than before, it seems we are trapped in a vicious cycle, because nobody is daring to challenge the ‘only game in town’. Debt charity Jubilee Scotland launched a report laying out alternative funding models such as a ‘Local-National Partnership’, where Local Authorities are supported by a national body, instead of bound by contracts that favour private investors. Common Weal has suggested that funds for public investment could come from the Public Works Loan Board or the Scottish National Investment Bank, which is set to launch this year. But this only will work if the government works with campaigners to put private financing behind them.

At home and abroad, this system of finance opens a route into building infrastructure while wilfully ignoring all the problems that occur during or after construction. Although the use of PPPs has been heavily criticised by political institutions and watchdogs, our governments continue to rebrand and repackage these schemes.

At a time of global crisis, we need to work towards constructing a new model that doesn’t rely on private money, building an alternative solution for funding projects that can work to help tackle public financing issues internationally.