Top economists call for inquiry into privately financed infrastructure projects

The Dumfries and Galloway Royal Infirmary was delivered using private finance
The Dumfries and Galloway Royal Infirmary was delivered using private finance

Two of Scotland’s most renowned economists have called for an urgent and independent root and branch review of the quango responsible for the country’s privately financed infrastructure projects.

A report by economists Jim and Margaret Cuthbert, which has been launched today by Scottish Labour, said contracts delivered by the Scottish Futures Trust (SFT) for public projects such as new schools, hospitals and roads are often shrouded in secrecy and offer poor value to taxpayers.

According to latest Scottish Government figures, officials at the NHS, colleges, councils and Scotland’s transport agency have signed 42 contracts with private financiers and construction companies for a total construction cost of £2.6 billion.

Over their lifetime, however, the projects will cost £7.6bn due to maintenance contracts lasting from 25-30 years, management fees and interest of up to 11.3% on borrowing.

According to the Cuthberts’ study, there is a secrecy and lack of transparency around how the SFT operates and its funding models are “unsustainable and expensive”.

Jim Cuthbert said: “Our research indicates a number of serious issues about hub and SFT activities, including lack of transparency, potential adverse effects on industrial structure, and worries about long term financial sustainability.

“There are specific recommendations in our report on each of these areas, which need to be implemented. But, more generally, what the report indicates is the type of problem which can occur when an organisation like the SFT grows incrementally, without adequate external scrutiny and strategic direction. The time is now ripe for a thorough review of SFT purpose and operations.”

Margaret Cuthbert added: “The latest data on the Scottish economy show poor growth in GDP. Labour productivity in Scotland, as measured by output per hour worked, decreased by 1.5% in real terms over 2016. The Scottish economy therefore faces major challenges.

“One of the major ways in which a government can help grow an economy is through the procurement of public infrastructure.

“Our paper questions whether the hub structure provides a good environment for encouraging organic growth in the economy, particularly since the hub approach will tend to limit small and medium enterprises (SMEs) to a subcontracting role to large private sector companies, most of which are headquartered outside Scotland.

“We question too whether the hub system is a good environment to encourage research and development by Scottish SMEs given work in the projects.”

The SFT’s scheme had previously come under fire for breaching EU accounting rules, with an expected cost of almost £1bn to the taxpayer.

Labour said the SNP government should now commission a full review of how the trust is operating, as well as Whole of Government accounts published, to ensure public funds are not wasted in the future.

Labour economy spokesperson Jackie Baillie said: “We need an independent, root and branch review of how the Scottish Futures Trust operates, given the scale of the problems uncovered by this report.

“The current approach is cloaked in secrecy, but we know there are serious questions about future funding. As it stands it looks like the government has maxed out the credit card without knowing if it can afford the repayments.

“Secondary market sales of debt could end up netting the equity investors up to three times the original capital they put in. It is an expensive way of funding public infrastructure.

“It’s like going to Wonga for a mortgage and not sustainable for the public purse, especially with the new powers coming to the Scottish Parliament making sound management of our finances even more important.

“This approach to financing means even less money for public services at a time of crushing austerity.

“SFT needs to be urgently reviewed and refocused. We need the accounts opened up showing all our assets and liabilities across the public sector. Only then can we begin to make sensible investment decisions for the future.”

The SNP said Labour must apologise for their “dreadful” PFI legacy before they can have any credibility on public finances.

Ivan McKee MSP said: “Labour’s toxic PFI legacy is still impacting on Scotland’s public services more than a decade after they left office.

“This £1bn bill that we are paying is robbing a significant sum of money from our budget that could be used to pay for vital frontline services and to grow our economy.

“Unless Jackie Baillie is willing to make a full apology today for the dreadful mess that Labour made of the public finances with their disastrous PFI contracts, no one will listen to a word they say.

“The SNP was proud to bring to an end Labour’s disastrous PPP schemes and in the relatively short time since SFT was established it has achieved a cumulative total of almost £1bn in of independently-verified savings and benefits.”

Share icon
Share this article: