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Review the SFT but avoid playing the Scottish card

Terry smiling headArguments over the use of public-private financing deals, in their various forms, to support hospital and school building programmes took a new twist last week when two economists revealed the difficulties they faced getting access to information.

Jim and Margaret Cuthbert’s inquiries on behalf of the Labour party into the functioning of the Scottish Futures Trust were frustrated by the inability to secure essential details, including the rate of interest being charged by lenders to support these multi-million pound projects.

The SFT is the SNP’s version of what began under the Tories as the private finance initiative, renamed and remodelled by Labour as public private partnerships. Despite the name changes the process remains essentially the same: that private companies do the building work, taking on the risk, and passing on the bill to the public sector over a long repayment period.

There were questions raised in the Cuthberts’ report about who is really taking on the risk because should these projects fail financially they still have to be completed and that means the taxpayer footing the bill.

Their conclusion was that a lack of transparency hid some dark secrets about the scheme, enough to prompt Labour’s economy spokesman Jackie Baillie to call for a root and branch review to ensure the country is getting value for money.

This seems like a justifiable request, given the vast sums of taxpayers’ money being poured into SFT-inspired building works, with a large chunk of the bill being left for our children to pick up.

One of their gripes was an inability to find out the interest rate being paid by SFT to its lenders, leading them to guess that it was about 5%. However, in a letter to a newspaper, SFT chief executive Barry White freely volunteered this figure as 4%. He also stated that most of the data around contracts is made available on the SFT website.

Ms Baillie was at least honest enough to admit that Labour was as culpable as other parties for any mistakes made in handling these deals, which implies that any “root and branch” review will see a need for those Labour ministers who made such errors to account for their own actions.

A sub-plot to the Cuthberts’ report was the apparent “failure” of the SFT programme to help economic growth by providing work to Scottish companies. It was noted that many of the contracts were awarded to companies outwith Scotland.

This is a point of contention. Applying positive discrimination to companies headquartered in Scotland is flawed for a number of reasons.

For starters, SFT is barred by EU law from favouring Scottish firms, a fundamental point which undermines one of the Cuthberts’ key arguments.

In any case, taking this as a starting point for awarding contracts shows little respect for the contribution made by “non” Scottish firms to the Scottish economy. At the very least, many have Scottish divisions, and they provide spin-off work for local suppliers.

The Cuthberts argue that innovation should be encouraged by the SFT and that by awarding work to companies not based in Scotland means that Scotland is denied this R&D activity.

This is also a flaky argument. Just because a company is headquartered in Oxford rather than Oban doesn’t mean Scotland is somehow denied the benefits of new building techniques. Indeed, construction companies from across the UK are taking advantage of an Innovation Centre which has just opened in Hamilton, where new ideas can be explored and tested.

Then there are the economies of scale to be achieved by giving the work to larger and more integrated companies, many of which will be headquartered elsewhere.

This has to be a key factor in any awarding of public contracts. Imagine the uproar if it was found the cost of an SFT contract was unnecessarily high because it had been awarded to a Scottish firm rather than to one prepared to do it for a lower price.

After all, Ms Baillie is not only concerned with transparency, but with achieving value for money. To that end playing the Scottish card does not provide any guarantees.

 

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