21 November 2008
Finance directors from Scotland's 32 councils are unconvinced by the government's plans for an alternative to PFI. David Scott reports from last week's Public Finance dinner debate in Greenock
Finance chiefs in Scotland believe that plans to create a new body to oversee the funding of capital projects will not deliver any benefits for local government.
Members of the directors of finance section of CIPFA in Scotland voiced their concerns about the Scottish Futures Trust, which is being set up by the Scottish Government, during a Public Finance debate in Greenock last week.
An overwhelming majority of attendees – a total of 24 – disagreed that the proposals would deliver any benefits. Only two agreed, while four members abstained.
Other controversial issues debated included: the Scottish Government's plans for a local income tax; pay and pensions; and the power and influence of finance directors.
Finance officials representing most of Scotland's 32 councils were present at the debate, sponsored by asset management company Threadneedle and chaired by Albert Tait, chair of the directors of finance section.
The panellists were Paul Brewer, a partner at PricewaterhouseCoopers; Professor Arthur Midwinter, a leading public finance expert and a consultant to the Labour group of MSPs at Holyrood; and Don Peebles, policy manager for CIPFA in Scotland.
The SFT vote came on the day Finance Secretary John Swinney announced further details of the scheme in the Scottish Parliament. The SNP sees the trust as a replacement for the 'costly and inefficient' Private Finance Initiative.
At the PF debate, Alan Wood, corporate finance manager at Aberdeenshire Council, asked whether the SFT was a 'successful evil' to promote public sector capital investment projects.
Brewer described the scheme as a pre-election 'great wheeze' by the SNP to create an entity that could obtain large-scale funding for infrastructure projects at relatively lower rates than for PFI projects and keep them off balance sheet so the funding would not score as capital expenditure.
He warned that the concept was extremely difficult to implement in terms of International Financial Reporting Standards. He added: 'In simple terms, it's damn near impossible to get anything by way of infrastructure spending off your balance sheet.'
However, Brewer advised that while there was 'not much on paper yet', that was not necessarily a bad thing as it was better to have it thought through and fit for purpose rather than it being driven by political jousting.
'People should join the debate and keep an open mind on it. I think there's a lot of good to come from it – it's just yet to be seen,' he added.
Many critics of the SFT have claimed the Scottish Government's intention to use the non-profit distributing system to fund projects means it is effectively retaining the PFI, despite manifesto pledges to abolish it.
Asked by the chair whether there was any case for changing existing arrangements, Peebles said there were still many questions to be answered – including whether something new was needed.
He believed that, in any event, finance officials were all signed up to good practice whatever method of capital funding was used. The focus had been mainly on the borrowing side rather than the expenditure involved. 'I think what we're looking for is more clarity, and that the clarity needs to be more on expenditure,' Peebles stressed.
The SFT project is one of two intensely controversial issues that First Minister Alex Salmond and his administration are pressing ahead with against strong criticism. The second is local income tax.
Lynn Brown, director of finance for Glasgow Council, said the press had suggested that LIT was one of the issues that helped the Labour party, which is against the tax, win the Glenrothes by-election.
Midwinter, a former adviser to the Scottish Parliament finance committee, said he was not aware that it had been an issue in the by-election but he believed it would become one in the constituency.
Figures being used by the Scottish Government were 'misleading and meaningless' and he predicted there would be far more 'losers' than the consultation paper on LIT suggested. 'I do believe that if LIT is introduced it will be as much a disaster as the poll tax,' Midwinter warned.
According to the SNP consultation paper, LIT will be a nationally set tax of 3p in the pound and it will apply only to earned income.
Peebles pointed to a recent significant shift in policy with ministers hinting that individual councils would be given the right to vary the level of tax 'downwards', and that unearned income might be included. 'That just might be enough to actually make up some of the shortfall [estimated by CIPFA to be £750m],' he observed.
But would the tax ever be introduced, asked Alan Geddes, director of finance for Highland Council. Peebles believed the SNP, by making some concessions, might now have moved far enough to make it a 'political likelihood'. Midwinter thought that the SNP would fail to get LIT through Parliament, despite concessions that could win over the Liberal Democrats.
Brewer stressed that the practical issues had not been addressed but added: 'It's always still possible for governments to bludgeon their way through these things.'
Unison members in Scotland last week accepted a local authority pay offer of 3% for 2008 and 2.5% for 2009.
Karen Kelly, head of financial services at the City of Edinburgh Council, questioned whether the public sector could continue to justify 'mid- or post-credit crunch' annual or bi-annual inflationary increases when the private sector was not awarding pay rises, people were losing their jobs and pension schemes were being increasingly withdrawn.
Midwinter predicted that the next two or three years would be 'much tougher on pay' and that there were likely to be 'budget freezes on everything' during that period. He forecast that it would become 'increasingly difficult to negotiate a pay rise and for councils to fund it'.
Peebles reckoned that the ending of final salary pension schemes for new employees 'is the direction we're going in'.
One of the final issues debated by the finance directors was their own status and influence. Sandra Black, director of finance for Renfrewshire Council, said good financial management sat at the heart of a successful organisation.
It was also questioned whether finance directors in the public sector had enough influence and power and whether that was likely to change.
Midwinter said he had always felt the finance directors he had worked with knew the 'game' they were playing. He added: 'I never had the feeling they were without power.'
Black said a comparison had to be made between the private and public sectors. In the private sector and in some councils, the director of finance was close to the chief executive and was at the centre of decision-making at board level. She added: 'That is not the case in parts of the public sector. I think that's wrong.'
PFnov2008
