10 March 2010
Private Finance Initiative costs are putting increasing pressure on Scottish councils, raising the spectre of ‘steep’ council tax rises in the future, according to economists.
Jim and Margaret Cuthbert carried out an analysis of the PFI for the Fraser of Allander Institute, a think-tank at Strathclyde University. They claim that a large number of councils entered into contracts that will require them to pay charges significantly above the rate of inflation.
The Cuthberts’ report, included in the institute’s economic commentary for March, examines how the charges are indexed to allow for inflation over the 25–30 years of the contract.
They found that a number of authorities have in effect cut corners in their affordability assessments, making unduly optimistic assumptions or failing to assess fully the availability of funding over the whole life of the PFI contract.
The husband-and-wife team add: ‘This means that many authorities will experience considerable difficulty in making their PFI contractual commitments, particularly since central government support to local authorities is likely to be progressively cut in real terms over the foreseeable future.
‘The consequences, both in terms of an increasing squeeze on other local authority services, and in terms of pressure for steep council tax increases, are likely to be severe.’
The paper points out that the current freeze on council tax bills in Scotland must mean that councils facing rising PFI costs are having to find other ways of funding their affordability gap.
The analysis shows that annual ‘unitary charge payments’ to consortiums running PFI schools are expected to rise from around £360m in 2009/10 to around £430m in 2011/12.
These payments cover the cost of operating and maintaining the schools, servicing the debt, and paying any tax required plus dividends to the financial providers.
According to the economists, Scottish local authorities have embraced the PFI much more enthusiastically than councils in England, with the result that any associated financing problems in an era of overall budget austerity will be liable to be more pronounced north of the border.
Meantime, a report published on March 8 by the Society of Local Authority Chief Executives and Senior Managersin Scotland has called for a ‘national route map’ for public services reform.
In a submission to the Christie Commission on the future provision of public services, Solace says reform, not restructuring, is needed to achieve a new generation of better services with less money.
