By Keith Aitken in Edinburgh | 3 October 2011
Scottish Infrastructure Secretary Alex Neil will tomorrow defend the Scottish Government’s plans for increased capital spending, after a setback for a showcase rail project raised fresh doubts over the funding mechanisms involved.
Neil will seek to justify both government support for capital projects and the viability of the non-profit distribution funding model, ministers’ preferred model for delivering capital projects. Neil will make his remarks in a keynote speech to a conference of the Scottish Futures Trust, the arm’s-length body set up to oversee public capital projects.
He is expected to tell delegates that NPD is an effective foil to the private profiteering that went with the Private Finance Initiative, because it returns surpluses to the public benefit and involves stakeholders more actively in running the projects.
Scottish ministers have promised sustained support for capital projects over the next three years to protect jobs and activity levels in the Scottish economy, in spite of a 36.7% cut in Scotland’s capital budget under the UK Spending Review. Neil’s speech will reaffirm that approach.
Some £2.5bn of infrastructure projects are projected, a 25% increase on original plans. Finance Secretary John Swinney switched £750m from resource to capital spending in his Budget two weeks ago.
But though the principle has wide support, the practicalities face mounting questions. The plans suffered a traumatic setback last week when a bidding process to build a £295m Borders rail line under the NPD formula unravelled, leaving Network Rail to pick up the tab.
Last week, it was reported that another prestige project, the Aberdeen bypass, could follow the notorious Edinburgh trams in spectacularly busting its budget – possibly by as much as a factor of three.
Then, at the weekend, two prominent Scottish economists, Jim and Margaret Cuthbert, issued a warning that the cost of PFI/NPD deals was leeching close to £1bn a year out of Scotland’s public finances.
The Cuthberts warned that these costs look set to mount well beyond the levels assumed in Swinney’s projections, thanks to the effects of inflation, higher interest rates and the drive to bring forward new projects.
