23 May 2008
Councils in Scotland will be able to operate a bond scheme to fund former Private Finance Initiative projects, under plans announced by the Scottish government.
The scheme is among proposals detailed in the Scottish Futures Trust blueprint announced on May 20.
First Minister Alex Salmond claimed the scheme would save up to £150m a year. He described it as a 'new and exciting innovation' in the procurement and construction of Scottish capital projects. 'By releasing up to £150m each year for increased investment, we can ensure more resources for our public infrastructure compared with wasteful PFI,' he said.
However, opposition parties and public sector unions accused the Scottish National Party administration of doing a U-turn on its original plans to replace the PFI with government bonds.
The municipal bond scheme is one of a number of elements in the government's business plan, Taking forward the Scottish Futures Trust.
The document concedes that ministers do not have the power to go ahead with the original plan. But it says a grouped local authority bond would be possible because of the borrowing powers of councils.
'Precedents suggest that with careful structuring and favourable market conditions, it may be possible to achieve funding close to the levels of Public Works Loans Board rates, but with the additional benefits for project or programme delivery that come with the rigour of bond finance and private sector management,' the document states.
Salmond pointed out that the scheme was similar to the Transport for London bond scheme which is being used to finance its £10bn, five-year investment programme.
Don Peebles, policy manager for CIPFA Scotland, told Public Finance that it seemed there was no legal impediment to the plan. 'However, this is only for part of the public sector — funding for the rest of it has still to be clarified,' he said.
The SFT scheme will also make use of the NDP (non profit-distributing principles) method of capital funding, which has already been used by some councils in Scotland under the existing PFI/public-private partnership arrangements.
Finance Secretary John Swinney said: 'By putting NDP at the core of partnership delivery and funding, we have already removed the element of the PFI that delivered the most extreme profits, and a Scotland-wide municipal bond opens up the prospect of further benefits.'
Labour dismissed the proposals as 'PPP with a new lick of paint'. The Scottish Tories pointed out that private finance would continue. The Liberal Democrats said the document was an admission that what the SNP had proposed was not possible.
Matt Smith, Scottish secretary of Unison in Scotland, said no amount of spin could change the fact that the private sector would continue to build, design and run public services. 'It is merely PFI-Lite,' he added.
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