09 November 2007
The Scottish government is examining an alternative method of funding public sector projects such as schools and hospitals after being told by the Treasury that it has no powers to replace public-private partnerships with a bonds issue scheme.
The Scottish National Party, before it took power last May, aimed to use a tax-exempt bonds issue as the central feature of its Scottish Futures Trust, which it promoted as a more efficient funding method than the 'costly and flawed' PFI/PPP schemes.
However, a Scottish government group of officials and advisers established to work on the design of the planned SFT is now concentrating on the development of what is known as the non-profit distributing model of PPP. This system has already been successfully piloted in one Scottish council.
The plan to introduce US-style bonds, which would be tax exempt for investors, was first mooted in an SNP consultation document in 2006, when the party was in opposition. It claimed that a bond issue paying a 4% coupon could result in savings of £116m being made from PPP projects being planned at that time.
However, the Treasury has pointed out in a letter to the Scottish government that it does not have the power under devolution legislation or Treasury policy to issue bonds. The letter also states that 'it is difficult to see a value-for-money case for the trust'.
The plan to promote the NDP model of PPP has been disclosed in a letter from Finance Secretary John Swinney to the Scottish Parliament finance committee, which has begun an inquiry into different methods of funding capital investment.
Swinney said the NDP, which has been piloted by Argyll & Bute Council and is about to be tested in another Scottish council, 'contains a number of elements that can be developed for incorporation into our SFT initiative which will deliver better, more efficient infrastructure for taxpayers'.
A Scottish government spokeswoman said the SFT would provide lower-cost borrowing and deliver best value for the taxpayers. 'We are working to develop the SFT and will report to Parliament in due course,' she said.
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