News that 17 Edinburgh schools were to be closed on Monday amidst fears for their structural safety sent waves of shock and “we told you so” across the city and Scotland. Following the collapse of a wall at
The official tale is that PFI no longer exists in Scotland, having been abolished by the SNP. The reality is very different: the SNP correctly identified that people liked the idea of there not being any profit being made from education, the NHS and large public infrastructure projects, so introduced a system known as “Non Profit Distributing” (NPD), a nice sounding name. They set up a trust known as the Scottish Futures Trust (SFT), another pretty cool sounding name, the SFT appointed a Chief Executive called Barry White. Seriously guyz, full marks for names.
Barry takes home a tidy £180,000 for helping SFT not make a profit, more than the First Minister (as tax creeps can verify here). He comes to this definitely not PFI role with a wealth of experience in definitely not PFI, previous employers include “BAM PPP” (the clue’s in the name) and “Partnerships UK”, the company set up the UK Treasury responsible for “furthering public-private partnerships in the United Kingdom.” He was also a Regional MD at Construction Firm Morrison Construction, who, like Miller Construction of falling down schools fame, are now owned by Galliford Try. Morrison Construction were awarded a £57m for Schools in Shetland last year, with funding coming via the SFT. Galliford Try are of the SFT’s “Tier 1” contractors, so the rebranded Miller Construction/Morrison Construction can now be found building Scotland’s rebranded PFI schools.
The key benefit of these schemes to Governments is that they can be kept “off balance sheet” and in the post #PanamaPapers world, what responsible Government wouldn’t want to keep their expensive dealings with the private sector away from the relevant authorities? Certainly not any we’ve ever had in Westminster…or Holyrood.
Last year, the Scottish Government was forced to reclassify one SPF project, the Aberdeen bypass (brought to you by a consortium including….Galliford Try!), making it a public as opposed to a private investment, to avoid falling foul of EU rules on public expenditure. This led to a hasty adjustment to the terms of other Government contracts, with a charity being set up to offload most of the stake previously held by the “granting authority” (council/health board), to avoid the Office for National Statistics counting the spending on public projects as public spending. Documents leaked to the Guardian stated,
Any perception of public sector control over the [project] delivery company must be avoided … Public-sector financing of projects [through debt or capital financing] must be limited in order to maintain clarity of risk-transfer to the private sector delivery partner.
The complete removal of any capital contribution to projects through the construction phase, or on construction completion, is the cleanest approach and will be adopted across the programme.
So the Scottish Government’s strategy to get rid of expensive long-term PFI deals now involves putting nothing in up front, meaning more of the cost to the public purse will be paid later. And the Scottish Futures Trust, intended to be the champion of the public good in these definitely not PFI deals, must avoid any perception of public sector control.
Aside from lots of nice names, there are 2 differences between what the SNP have done and most previous PFI contracts – the assets will be public (which matters) and the returns for the bidder are defined when the contract is signed, which only matters if investors are prepared to accept lower returns, which there is little/no evidence for, meaning the increased risk from not holding the assets would need to be offset with more cash from the public purse. Aside from the exact structure, the concept is the same: buy now, pay later, pay lots. The biggest cheek is using the words “Non Profit Distributing” when the only entity which doesn’t make a profit is the Scottish Futures Trust set up with public cash. But don’t take my word for it, here’s a handy quote from legal firm, Blake Morgan, who explain,
It is therefore not a “not for profit” model. Contractors and lenders are expected to earn a normal market rate of return, as in any other form of privately-financed PPP deal.
The NPD model is defined by the principles of enhanced stakeholder involvement in project management; no dividend-bearing equity; and private sector return capped at a reasonable rate set in competition through an open procurement process compliant with EU rules. Investors bid a rate of return in competition.
It is important to realise that apart from this, NPD is not very different to traditional forms of PPP including PFI. In particular, the distribution of risk between public and private sector, including to construction and service contractors and their sub-contractors, is much the same.
Welcome to the SNPFI Scotland, “much the same” as New Labour’s PFI Scotland – built on the crumbling foundations of a Tory dream: that no school, no hospital, no road can ever be built without the private sector making a long term profit at the expense of the taxpayer. Keep it “off balance sheet” to avoid accepting the true cost and call it something funcy to avoid accepting it’s even PFI. This week’s Tax Return Voyeurism is nice but when John Swinney is coming up with ever more creative ways to use PFI projects to prevent the Office of National Statistics from measuring public spending as public spending, it’s hard to take any of it very seriously.
There will be enough huffing and puffing about the sorry situation now facing Edinburgh’s pupils to blow many PFI schools down, and rightly so; we all deserve to know why companies were allowed to profit from dangerously sub-standard schools for so long – but the fact we’re still building a PFI school system and a PFI state in Scotland, suggests the lessons staring at us from the rubble have yet be learned.
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