‘Protect Our Future’: 4 steps Scotland can take to ditch the great private finance swindle

06/02/2017
Nathanael Williams

Campaign launched for public investment in the public interest

A NEW CAMPAIGN has been launched today (Monday 6 February) to get the Scottish Government to ditch its private finance schemes and replace the private infrastructure body, Scottish Futures Trust (SFT), with a state investment company.

Called ‘Protect Our Future’, the campaign launch follows revelations last year that public-private partnerships have cost the taxpayer £932m, creating a blackhole in Scotland’s capital investment budget, to the advantage of private companies.

Many public-private partnerships were negotiated during previous Scottish administrations over a decade ago but are still on the books as debts that are crippling the finances of local government. 

CommonWeal, the leftwing think tank that is spearheading the campaign, is being joined by trade unions and activist groups to pressure the Scottish Government to set aside £1.35bn over six years to create a Scottish National Investment Bank (Snib) and corresponding Scottish National Investment Company (Snic) to fund future projects.

To accompany the launch, Common Weal has also published a report called ‘Building Scotland’s future now’ which outlines the ways in which the Scottish Government, both now and in the future, could look at financing infrastructure projects in a sustainable manner and to the public benefit.

CommonSpace looks at the campaign and the report to and breaks down the four steps Scotland could take to ridding itself of private finance schemes.

What’s the problem with Private Public Partnership (PPP) infrastructure projects?

Table showing difference in costs to projects under current Scottish Government & UK Government plans and future Scottish Investment Bank

Private-public partnerships were started in the UK in 1992 by the then Conservative Government as a way of investing in public services using private money to keep taxes and spending low. It was then continued by successive Labour Governments from 1997 onwards with heavy debts incurred by schools, hospitals and local councils across the UK.

Critics of the arrangement argue that the deals often undermine the public interest.

The private companies often make large profits through the schemes, which often see them being remunerated through payments schemes which accumulate interest over decades.

In 2016 Scottish First Minister Nicola Sturgeon had to call an inquiry into past public private partnership (PPP) deals because of the closure of 17 schools and disruption of 7,600 pupils in Edinburgh, where PPP constructed schools have been found to have serious faults.

The authors of the Common Weal paper frame the development of private finance schemes in the context of Scotland and the UK having the lowest levels of public investment in the EU. They claim a public investment bank would eliminate the need for private finance.

Even though the Scottish Government uses a ‘non-profit distributing scheme’ or an NPD, which basically means that no extra profits will be paid to private equity firms, the risk remains for local authorities getting into unsustainable debt.

The four steps that could release Scotland from private finance schemes

  1. Saying goodbye to austerity

Trade unions such as Unison Scotland and Unite Scotland have come out in support of the campaign saying that addressing the massive debts chalked up by private finance schemes would take the pressure off public sector workers having to face pension and wage cuts.

In their 2015 briefing, Unison Scotland claimed that 95 such projects are estimated to pay out over £35bn in unitary payments to private firms from the public purse.

This at the time was the equivalent of the Scottish Government’s entire annual budget.

  1. A Scottish National Investment Company

A Snic would be different from the current SFT body, in that it would design, build, finance, operate, manage and own the facilities it built.

It would be charged with leading Scotland’s public investment strategy with Scottish ministers being directly accountable.

The outcome of such an arrangement would be to boost the borrowing limits by jointly coordinating regional and local authorities training them in public financing, planning, legal issues, energy strategies, architectural design and construction.

  1. A Scottish National Investment Bank

This public funded bank would lend to small to middle sized business which at the moment only see 8 per cent of lending from the corporate banking sector.

A bank such as this could increase spending on public investment in sectors like energy and housing, increasing the amount of social housing and allowing a long-term strategy on renewable investment.

The Snib would be based on the Kreditanstalt für Wiederaufbau (KfW), the German national investment bank, the fifth largest capital issuers in Europe which has raised the equivalent of 2.2 to 2.6 per cent of German GDP.

  1. A new funding strategy for a new nation

Instead of owing massive sums of interest and paying back to corporate entities, the report proposes Scotland could organise a more sustainable way for local authorities to pay for projects and pay back any investment. 

For example, a housing project would be built regionally and funded by the new Snib and Snic . The Snic would help with expertise, design and how to run the project and the local authorities would receive rents and energy bill payments through the new social housing stock.

In turn, the local authority would pay back any government creditors at a fixed rate.

Speaking to CommonSpace Ben Wray, head of policy at Common Weal said: “Paying excessive debt interest to private companies is not sustainable and is not necessary. We hope through this report and through the launch of the new campaign, Protect our Future, we can get this message across to the Scottish Government and convince them to act.”

Picture courtesy of CommonWeal 

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