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Introduction
The Private
Finance Initiative (PFI) is fast becoming the preferred method
of building or refurbishing Scotland's schools. Under PFI private
companies design, build, own and operate schools in return for
a fee for the duration of a contract which is typically as long
as 25-35 years. This briefing looks at the growth of PFI in schools
and sets out some of the key arguments branches can use to oppose
the backdoor privatisation of Scotland's education system.
The Growth
of PFI in Schools
PFI in schools constitutes one of the main growth areas of PFI
in Scotland. Schemes with a capital value in excess of £500million
are currently being planned. The local authorities, include Glasgow,
Falkirk, East Renfrewshire, Stirling, Aberdeenshire, West Lothian,
Fife, Edinburgh, Highlands, East Lothian and Midlothian.
The schemes in Glasgow
and Falkirk are pathfinder schemes. These are used as a model
for other local authorities to follow. Scottish Executive Ministers
have recently confirmed their support for PFI in schools and have
encouraged local authorities to use this method of funding.
The Case
Against PFI in Schools
When a schools PFI scheme is proposed, local authorities justify
this method of funding with a number of specific reasons. In this
section, we address some of these reasons and give branches the
necessary counter arguments.
PFI provides additional
funding.
The cost of borrowing by PFI companies is included in the fee
they charge to the local authority. Therefore the effect is the
same as if the council borrowed the money itself - except they
could have borrowed at a lower interest rate.
Off Balance Sheet
Treatment.
The Government encourages local authorities to use private finance
as the loans generally do not appear as Government borrowing.
This is known as "off balance sheet" treatment. This
is of course an accounting illusion as the tax payer still has
to meet the bill. The
Treasury's official
position is that accounting reforms mean that PFI cannot be used
to take projects of the public sector balance sheet. However,
local councils believe that in order to receive approval and financial
support from the Scottish Executive that their schemes have to
be "off balance sheet".
Staff Transfers.
There is a widespread perception amongst Scottish Councils that
to achieve "off balance sheet treatment" depends on
transfer of staff to the private sector. Glasgow City Council
wrongly told its authority "that there has to be a significant
transfer to a private sector contractor". In July 1999, the
Government changed the accounting treatment for PFI, following
UNISON's campaign, which means that there is no longer a requirement
to include support services in PFI schemes. Branches should get
authorities to demonstrate that transferring staff represents
value for money in its own right.
Revenue Neutral.
Authorities usually claim that PFI schemes are "revenue neutral"
and that the costs are met partly from the Scottish Executive
and partly from the existing revenue budgets for the service being
transferred to the private sector. In practice, there is almost
always an affordability gap which is bridged by cutting services.
For example, in Glasgow, staff discovered that the new schools
would have fewer classrooms, teaching areas and sports facilities.
The estimated charges for accommodation in the Glasgow scheme
almost doubled between feasibility study and final business case
stages. In addition the system for allocating a Scottish Executive
revenue support for PFI results in the mismatch between the amount
they receive for any given year and the PFI charge. Over the period
of the contract, PFI funding does not match the cost to be met.
Inflexibility.
Over the course of a 25-30 year contract, it is inevitable that
the use of a school will change and hence the income flow. Any
shortfall has to be met by the council or the school itself as
PFI funding is ringfenced. This means that other services within
or outwith the school will have to be cut to meet this shortfall
in funding.
Value for Money.
Every PFI scheme should have a Public Sector Comparator (PSC)
to demonstrate that the PFI scheme is value for money. Our analysis
of schools PFI schemes shows that these are usually distorted
to give the impression that PFI schemes meet the value for money
criteria. This is often done by applying different criteria to
the PSC avoiding a level playing field comparison. Favourite tricks
are to apply different discounting rates and other alleged benefits
which are given notional cash values. When looking at PSC's, branches
should ensure that all figures are produced on a like for like
basis.
Risk Transfer.
In all schools PFI schemes UNISON has examined, the value for
money of the PFI option was dependent on the valuation of risk
transferred to the private sector. In practice, all the real risks
are retained by the council and in the Glasgow scheme even the
borrowing was underwritten by the local authority. Authorities
put huge valuations on the risk to massage the PSC. For example,
in the Glasgow scheme the risk factor was calculated at £70million
to cover up the fact that the council would be paying nearly £35million
more in cash than if its schools were funded by conventional finance.
Contract Termination.
Councils claim if the contractor fails to provide the subscribed
level of service they can terminate the contract. Astonishingly,
under Treasury rules, PFI contractors are entitled to receive
compensation when the contract is terminated due to their own
breach. Again, this is done simply to massage the benefits of
PFI.
Accountability.
In reality, most local authorities only go down the PFI route
because they believe public sector capital will not be available.
Ironically, if they stated this, they would not qualify for Scottish
Executive funding. This is because the approval process requires
them to confirm that it has evaluated the PFI option against the
PSC and found it to be better value. In practice, most of the
financial issues associated with PFI schemes are either kept from
elected councillors or where they are shared they are so complex
that they are not understood. Most Scottish local authorities
have gone out of their way to avoid public scrutiny either by
publishing no information or by publishing sanitised versions
of the full business case. Public accountability is almost non-existent.
Branch Action
Branches should identify possible schools PFI schemes as early
as possible. Ask about the authorities capital programme and how
they intend to finance it. This enables you to press for early
disclosure of information and to begin campaigning. UNISON recommends
a twin track approach which encompasses campaigning and negotiating.
For further details see the UNISON guide Challenging the Private
Finance Initiative (Stock No.1763). Other information can be found
on UNISON websites www.unison.org.uk
or on
this site.
Contacts list:
Dave Watson
d.watson@unison.co.uk
@ the P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0141-332 0006
Fax 0141-307 2572
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