On BBC Scotland on Sunday, picking over the impact of the Carillion collapse on a major unfinished road contract in her constituency, Gillian Martin sought to contrast her government’s approach from earlier, discredited Private Finance Initiative (PFI) schemes across the UK.
“We got rid of PFI,” insisted the SNP MSP for Aberdeenshire East. She then struggled to describe her party’s alternative, calling it “a sort of non-profit, capping profit approach” to private companies involved in delivering public infrastructure. Regaining her composure, Ms Martin elaborated. “It’s completely different. It’s better value for money, for one thing, and there’s a cap on profits.”
Is it? Does it? I’m not at all sure anyone knows, given that the SNP’s alternative approach to delivering public infrastructure shares one defining characteristic with PFI. Both depend on long-term build, finance, maintain and operate contracts, typically spanning three decades. The unexpected can always happen in that extended time frame. We will only know whether the Aberdeen Western Peripheral Route really is a procurement bargain in the late 2040s.
The Scottish government calls its approach a non-profit distribution (NPD) model. And the new arms-length limited company it created in its first minority administration to roll out that approach, the Scottish Futures Trust (SFT), maintains a decidedly low public profile.
Of the £11.5 million income SFT received from the Scottish government last year, £7.3 million was spent on the salaries, pensions and related costs of its staff of 71. That takes the average remuneration package, for a body answerable only to Scottish ministers, into six-figure territory.
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The SFT not only has responsibility for rolling out the NPD approach to financing public infrastructure, it has also been instrumental in creating five regional hub territories across Scotland now directly involved in providing new schools, health centres and other facilities in collaboration with local authorities.
Each of these hubs consists of not just public service providers but, typically, a trio of private sector providers as well. A construction specialist. A services provider. And an asset finance specialist. The hub where I live, east central, stretches all the way from West Stirlingshire to the Angus braes and includes seven local authorities, three health boards, police, fire and rescue, and the ambulance service.
So how is it doing? According to its latest party political broadcast last week, the SNP has so far delivered around 750 new or refurbished schools. That’s getting on for a third of the entire stock of schools across Scotland. So far, in the Stirling council area, the east central hub has delivered just two new primary schools. It turns out that 750 claim is a gross exaggeration. As the deputy first minister, John Swinney, made clear last August, the overall number of schools currently being delivered under the government’s Schools for the Future programme is 116.
The NPD approach has had other problems. In 2015, following a change in EU accounting rules, the Office for National Statistics reclassified the Scottish government’s hub programme and other NPD projects such as the Aberdeen bypass as counting directly towards public procurement. SFT then revised its hub model to create special purchase vehicles, 60 per cent controlled by private sector partners, 20 per cent by a new charity vehicle, 10 per cent by SFT and 10 per cent by the procuring public authority.
That satisfied the ONS that the restructured hub deals would be classified as private sector. What remains rather more opaque is where the risk capital raised by these special purpose vehicles ends up on the secondary market and how high the rates of interest placed on them might go, to reflect that risk and generate demand. Thus it is far from certain that NPD will always be better value for money.
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A major Audit Scotland inquiry planned for this year should help enlighten us all about SFT.
Alf Young is a visiting professor at the International Public Policy Institute at the University of Strathclyde