Money

Private finance schemes costing public sector four times their value, says Audit Scotland


Privately financed schools, hospitals, roads and other assets will cost the public sector more than four times their capital value of £9 billion, according to Audit Scotland.

In a new report, the spending watchdog said the Scottish public sector has paid £13.1 billion in annual payments for a total of 136 projects under contract under three models since 1998-99 and will pay a further £27 billion between now and 2047-48. The £9 billion quoted is for projects currently under way.

Audit Scotland called for more clarity on the use of private finance. Its study looked into the use of the Private Finance Imitative (PFI), Non-Profit Distributing (NPD) and hub contract models.

Audit Scotland said these are – as accepted by the Scottish Government – more expensive than other forms of funding but enable additional infrastructure investment.

The schemes spread the upfront cost and transfer some risk and responsibility to the private sector, compared with paying from the capital budgets of councils and government.

But the public sector makes annual payments to cover the cost of financing, building and maintaining the assets.

The report calls for the Scottish Government to learn lessons from the use of NPD and hub schemes when introducing future models by increasing public reporting and using clear criteria to better demonstrate how value for money is achieved.

With the NPD projects, auditors heard of difficulty identifying savings for individual projects, and that additional costs may have been underestimated.

The report highlights the finance schemes mean councils focus on affordability, rather than value for money, and questions if “the implications of entering into these contracts have been fully considered” by local authorities.

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For hub projects, auditors were told of potential for conflicts of interest since private sector consortium can include companies which are part of the approved supply chain.

The report also warned of the possibility of private companies profiting from the contracts, despite moves to limit this after concerns over PFI schemes.

Scotland’s Auditor General Caroline Gardner said: “The Scottish Government has accepted the costs of using these contracts to increase total infrastructure investment.

“But the impact on future budgets is significant, as is the overall amount of money that will be repaid. With the introduction of the Mutual Investment Model, the Scottish Government has an opportunity to be clearer about the additional costs of investment associated with using privately financed contracts for specific projects.”

Accounts Commission chairman Graham Sharp said: “We’ve found that local councils have been left with limited options other than to construct new and replacement public buildings through private finance deals.

“The main consideration for councils has been the affordability of repayments, with little focus on the wider implications of using private finance.”

The Greens said the Scottish Government “relies on extortionate private finance contracts to hide its debt” and these type of contracts should end.

Meanwhile, the Tories claimed ministers have “double standards” on private financing as they questioned the governance of some projects.

A Scottish Government spokesman said: “The Scottish Government no longer uses any of the private finance mechanisms covered by this report.

“As the report recognises, NPD and private financing through hub companies has enabled £3.3 billion of additional investment in Scotland’s infrastructure that would not otherwise have been possible, given budgetary constraints placed on the Scottish Government by the UK Government.”

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He said infrastructure investment can unlock economic potential, the Government publishes explanations of its financial decisions and that it will reflect on the report.



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