How the SNP can fix the PFI scandal that never went away

This issue is all about public finance and private financial markets which makes it intensely technical and sprawlingly complicated.

As you probably know, PFI was introduced as a political wheeze to effectively borrow money but, sneakily, to keep the borrowing “off the books” so it didn’t appear on the balance sheet.

Introduced by the Tories and turbocharged by Labour, it resulted in some of the worst value-for-money government I’ve seen in my life. It has been known as the “buy three get one scheme” because early phases of PFI were literally costing three times as much as building the same school or hospital in the public sector.

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This is the next complication: PFI keeps getting tweaked and every time it gets a new three-letter name. Blair’s government turned PFI into PPP. Then the SNP tweaked it further to turn it into NDP (Non-Profit Distributing, which is misleading because loads of profit was distributed to private financiers). It had some very slight improvements over the PPP model, but it was still building expensive hospitals that the public sector had to rent.

Then in 2014, the European Union basically had enough. It was transparently clear to everyone that PFI existed only as a complicated financial trick to borrow but not appear to borrow. It would be considered dodgy accounting if it were a business, so the EU statistics agency simply changed the rules so that if government was legally committed to renting a hospital for 30 years, the whole cost of that lease should be a liability on the public books.

This also affected NPD because it too was a variant PFI scheme. So three things happen at this point. First, Westminster drops PFI altogether because it was both terrible value for money and also recorded as public debt. There was no point. In Scotland, the Scottish Government tries to continue using NPD because of limited borrowing powers (which I will return to).

But in Wales, (also with limited borrowing powers) the Labour administration tries to come up with a new wheeze for keeping the money off-books. I won’t go into the technicalities of how it works, but it is called the Mutual Investment Model or MIM.

The Oxgangs Primary School wall disaster shows the dangerous of PFI

In Scotland, the “PFI people” are the Scottish Futures Trust – think of it like the financial sector and the giant corporate developers’ representative in government. They run PFI, and in 2015, the SFT published a report which fiddled the numbers a bit and then called for MIM to be introduced in Scotland.

That is a worse deal than NPD which was itself only marginally better than PFI. And that remains how Scotland builds its infrastructure to this day. Again, the ways this system works are too complicated to explain but basically, only giant contracts can work so only giant construction corporations can bid, cutting out most Scottish businesses. From there the problems are pretty well identical to PFI.

So when The National highlights that the Capitas and the Carrillions and the dominance of the “Big Four” accounting firms (KPMG etc) may be about to return, it is galling to think that in Scotland, they never went away. Financial consortia operating with perhaps three or four corporations facilitated by big accountancy consultants have the run of Scotland’s public infrastructure building.

That’s how the same construction company can build a PFI primary school in Edinburgh where a wall falls down, then still get a contract to build a leisure centre in Dumfries which is so bad it can’t be opened and requires a decade of litigation – and yet still gets the contract to rebuild Glasgow School of Art which promptly burns down again under its watch.

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The argument used against this critique is that the Scottish Government has no option because of its borrowing limitations. Well, Common Weal is part of a coalition called Scotland Against Public Private Partnerships (SAPPP). We’ve been campaigning against Scotland’s PFI for years now and have produced lots of material on alternatives. Let me just mention two here.

First, we urged the Scottish Government again and again to ask for “prudential borrowing powers” when it renegotiated the fiscal settlement for Scotland. Last year the outcome of that was announced and I’m afraid the Scottish Government simply rolled over and Westminster got everything it wanted and Scotland got nothing. This should have been a scandal.

But barring that, we believe the best solution is what is known as Public-Public Partnerships, where a public body that can’t borrow (the Scottish Government) works in partnership with those which can (for example, local authorities or housing associations). Imagine a national energy company where the Scottish Government co-ordinates and pays the revenue costs of a host of energy generation companies which are set up and owned by local authorities, keeping it all in the public domain.

So this is the reality; the UK left PFI behind a decade ago but Scotland still clings to it. Every option for replacing it has been ignored or rejected.

We now have a situation where there is a cross-party group in the Scottish Parliament to push for the end of PFI in which everyone is represented (even the Tories are on board) – except the SNP.

We’ve tried to get them involved but we’ve not managed, even though party conference has twice voted to support our proposals.

I repeat; PFI is an affront to democracy and a travesty of good, efficient government. It screws over pubic service users and is a blank cheque for financiers and big corporations to rip off the public. Yet the Scottish Government clings to this scheme for dear life and won’t listen to alternatives.

Sometimes you need to put your own house in order before pointing fingers …