Privately financed infrastructure projects costing public sector four times their value
The Scottish Government needs to be clearer about the role of private finance in public infrastructure projects, according to public sector watchdogs after a new report found schools, hospitals, roads and other assets will cost the public sector more than four times their capital value.
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Dumfries and Galloway Royal Infirmary was one of five healthcare projects procured under the Scottish Government’s non profit distributing (NPD) model
Models for investing in public infrastructure using private finance have been in place since the 1990s, enabling additional infrastructure investment.
In a new report out today, Audit Scotland said assets worth £9 billion are currently under contract and the Scottish public sector will make payments worth over four times the capital value of the assets built (over £40bn) with £27bn still to be paid between now and 2047/48.
In Privately financed infrastructure investment, Audit Scotland said the Scottish Government accepts that using private finance to pay for public buildings is more expensive than other forms of funding but uses this to enable additional infrastructure investment.
Private finance comes at a cost. Over the lifetime of active PFI, NPD and hub contracts, the public sector makes annual payments to cover the cost of financing, building and maintaining the assets, as well as other services the private sector is providing.
The watchdog has called for greater transparency over decision making to show projects represent value for money.
Caroline Gardner, Auditor General for Scotland, 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. This will enable better reporting of how the overall combination of project funding is being used to maximise the benefits of investment across the whole public sector.”
Graham Sharp, chair of the Accounts Commission, added: “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.
“With a new mechanism for funding Scotland’s schools infrastructure, local councils must be fully aware of the benefits and risks of funding the entire construction costs with a mix of capital grants, borrowing powers and other resources.”
Scottish Labour has called for an end to private finance models in public infrastructure projects altogether.
Analysis commissioned by the party from October 2017 found that having capacity for public sector borrowing would save around one fifth of the overall cost of NPD and hub private finance contracts.
Scottish Labour infrastructure spokesperson, Colin Smyth MSP, said: “There is an urgent need for reform of the Scottish Futures Trust and an end to the current approach which is shrouded in mystery and benefits only private investors.
“The current system is creating unsustainable levels of debt and is forcing our hard-pressed local authorities into using costly private finance models for investment.”
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 £3.3bn 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.”