UNISON Scotland's response to the Scottish Parliament
Finance Committee on their Call for Evidence on the Funding of
Public Capital Investment Projects
December 2007
Scottish Parliament Finance Committee Call for
Evidence: Funding of Public Capital Investment Projects
Introduction
UNISON Scotland welcomes the opportunity to respond
to the Call for Evidence from the Scottish Parliament Finance
Committee on the Funding of Public Capital Investment Projects.
UNISON is Scotland's largest public sector trade union representing
over 160,000 members delivering public services.
We welcome the Committee's remit to "report
on the advantages and disadvantages of different actual and proposed
models of funding capital investment projects."
The Case against PPP/PFI
We focus here on PPP/PFI. UNISON has long
pointed out concerns including service quality, costs, accountability,
inflexibility and the effects on staff terms and conditions. We
strongly believe that the private profit motive should have no
place in running public services. Opinion polls, including a BBC
Scotland poll in April 2007 (1), show that Scottish public
opinion agrees.
PPP/PFI has been used extensively in Scotland primarily
as a means of keeping expenditure off the public balance sheet.
We understanding the drivers for this approach however, we believe
it is wrong in principle to account for over £53bn of UK public
expenditure (capital value) in this manner. We describe this as
‘Enron economics' and we call for a return to proper accounting,
a step that may be realised with the new IFR standards.
PFI will always be a more expensive method of funding
capital projects because of the requirement to finance the profits
of the private firms, the additional borrowing costs and the very
limited notion of risk transfer. This has caused an affordability
gap for many public service organisations even after Scottish
Government subsidies for PFI schemes. In addition to the cost,
PFI has resulted in a culture of secrecy that has excluded the
public and staff from many aspects of the design of projects with
a consequential impact on service quality. It has split up the
public service team when facilities management staffs are privatised
leading to many of the service delivery problems that were evident
the CCT era.
Numerous studies have highlighted a range of serious
flaws in PFI/PPP policy, the most recent being the House of Commons
Public Accounts Committee Report of 27 November 2007 (2).
It focused on tendering and benchmarking and concluded that value
for money for taxpayers was often not being achieved with projects
in England and Wales for several reasons, including fewer serious
bidders due to the high costs and very lengthy tendering times.
These problems clearly also apply in Scotland, on top of the many
other ways in which this policy leads to profiteering at the expense
of school children, hospital patients and taxpayers. Up-to-date
research by Scots economists Jim and Margaret Cuthbert shows that
the profiteering may be on a much greater scale than has been
realised (3).
In October 2007 we published At What Cost -
a UNISON Scotland report on the aggregate costs of PFI/PPP projects
in Scotland (4), attached with this submission. This revealed
new figures which confirm that billions of pounds of taxpayers'
money are being wasted. The report looked at Full Business Cases
from 35 projects. These official documents claim to demonstrate
that the PFI/PPP route is providing value for money. Instead,
they show that UNISON's calculation of £5.8 billion being wasted
on PFI is likely to be an underestimate.
The Way Forward
In this submission we focus on a way forward for
public capital investment. In particular we believe there is significant
scope for a consensus in the Scottish Parliament on creating a
proper level playing field between PFI/PPP and conventional capital
funding.
We note that many politicians at national and local
level have in the past supported PFI/PPP projects with some reluctance,
for pragmatic reasons. It was seen as ‘the only game in town'
for the provision of new public infrastructure, but there has
been considerable unease about the true financial costs to the
taxpayer.
We believe that a commitment to creating a genuine
level playing field could be the basis for cross-party consensus.
We hope the committee will consider the following five proposals
for short term action, while longer term solutions, such as the
Scottish Government's proposed Scottish Futures Trust initiative,
are developed.
We note with concern though that Finance Secretary
John Swinney's October letter to the Committee refers to achieving
a "better balance of risks and costs" within PFI. We
disagree with this approach, preferring the SNP's own manifesto
aim to "crowd out" PFI. We highlight in the SNP Proposals
section below some of the flaws with the Non-Profit Distributing
model John Swinney appears to endorse.
Five proposals for Short Term Action
1. Existing Contracts
A review should be carried out of existing contracts,
with rigorous monitoring and advantage taken of price review clauses,
especially for FM services. There may be some where it would be
appropriate to ‘buy them out', if this benefits the public purse.
Three PFI contracts have been bought out to date, but the Auditor
General's 2005 report on the Skye Bridge contract buyout contradicted
the 2004 claim by then First Minister Jack McConnell that the
£26.7m deal was good value for money, reporting to Parliament
that it was in fact neutral, in terms of public funds.
2. No New Contracts
No new PPP contracts should be approved. This includes
all projects in the planning phase where no contract has been
entered into. It may be argued that projects that have been published
in the OJEU must be proceeded with. We do not agree. It is possible
to adopt a legal strategy that ensures that additional costs do
not fall on the public purse. Even under the current rules
final project approval is subject to an evaluation based on value
for money and affordability.
3. Grants on a True Level Playing Field Basis
Scottish Government grants should be offered for
new capital projects irrespective of the method of procurement.
Current arrangements generally only provide funding for PPP projects.
This should lead to more local authorities using their prudential
borrowing powers granted by Scottish legislation.
4. Prudential Borrowing for Health Boards
Health boards do not currently have prudential borrowing
powers, but should be given them by passing legislation. It is
debatable whether the Scottish Parliament can do this but the
UK Parliament introduced a form of this for Foundation Hospitals
so would find it difficult to oppose Scottish legislation. (We
are proposing only the financial powers not the importation of
the discredited Foundation Hospital system.) As a last resort
other innovative solutions might be found for health projects
involving joint working. Local authorities could use their powers
while health boards provide revenue funding
5. Strengthened PPP Staffing Protocol
New procurement arrangements should at a minimum
ensure that staff are excluded from transfer. The principles of
a strengthened PPP Staffing Protocol must be applied across the
public sector.
Scottish Futures Trust
The SNP manifesto accurately described PFI/PPP as
"costly and flawed". It said the proposed Scottish Futures
Trust should emerge over time as a more attractive source of funding
which would effectively crowd out PFI/PPP. The reason for the
SFT is that public borrowing is cheaper than private. Tax efficient
bond issues would be able to raise sufficient funds to finance
large infrastructure projects that would be hard to fund within
conventional capital budgets.
There are obviously significant vires problems with
the SFT as set out in the SNP proposals. UNISON Scotland would
support an amendment to the Scotland Act to give the Scottish
Government the powers to raise money in this way. These powers
are available to other federal and devolved administrations elsewhere
in the world. Concerns about the impact on overall UK public spending
could be addressed by adopting measurements of public spending
used elsewhere in Europe, here in the UK. These have the effect
of removing certain items of expenditure from the calculation
of aggregate public spending, creating headroom for spending for
investment.
Whilst we support the constitutional change as set
out above this must not be used an excuse for delaying the abolition
or ‘crowding out' of PPP/PFI in Scotland. As we have identified
in our proposals, much can be done within existing powers.
Non-Profit Distributing models
We note that Finance Secretary John Swinney's October
letter to the Committee highlighted the Non-Profit Distributing
(NPD) model of PPP, piloted by Argyll and Bute Council for their
schools project. The PFI industry is now attempting to save their
discredited approach (and profits) by attempting to differentiate
the ‘standard PFI model' from the NPD model.
While we can understand that some might at first
be attracted to the concept of this because of the non-profit
aspect, UNISON has always warned that the NPD model still maintains
most of the other flaws of PFI/PPP and is therefore essentially
window dressing. NPD models retain the higher borrowing costs,
private profit at the contractor level and elements of the risk
transfer costs all leading to the same profiteering and inflexibility
inherent in PFI. The charitable donations are simply recycling
public money and they retain the secrecy and accountability deficit
inherent in PFI schemes.
The SPICe scoping paper for the capital investment
inquiry points out that in Argyll & Bute the private sector
makes a profit at the sub-contractor level, while in Falkirk the
private sector has a majority on the board. The Scottish Government
Financial Partnerships Unit said that the model could deliver
only "marginally lower" costs of financing. There are
those in the industry who have argued that the NPD model is actually
more costly and we suspect their conversion is simply tactical.
For these reasons we would urge Committee members
not to support extending the use of this model as this would simply
be a cosmetic change to existing PFI schemes. Quite apart from
the fact that such a change would not implement either the SNP
or Scottish Labour manifesto commitments.
Accountability and access to Information
One extremely important aspect of PFI/PPP is that
too often information that is essential for the proper monitoring
of public expenditure is withheld due to so-called commercial
confidentiality or commercial sensitivity.
We urge the Committee to revisit some recommendations
from the Finance Committee's 2001 report on PPP and the then Transport
& Environment Committee 2001 report on the water industry.
We note just one example, among many, of accountability problems.
Neither Scottish Water, nor the Scottish Executive, as it then
was, were able to provide Full Business Cases for ANY of the nine
waste water treatment PFI schemes when UNISON requested them last
year under Freedom of Information legislation. Both bodies said
these documents, the basis for millions of pounds of public spending,
were "not held". Yet these Committees emphasised the
importance of public access to FBCs. See Note 16 in At What
Cost for full details.
This level of secrecy is inherent in PPP/PFI including
NPD models and undermines public accountability and involvement
in the development and design of public buildings. We would also
urge that companies involved in PFI/PPP contracts should be brought
under the scope of Scottish Freedom of Information legislation.
Conclusion
We believe UNISON Scotland's proposals would establish
a new capital procurement regime quickly, enabling most public
bodies to develop essential infrastructure now, without the expense
of PPP/PFI. We would also urge the Committee to reject cosmetic
changes such as the NPD model. We would support in principle the
Scottish Futures Trust but we should not allow the potential constitutional
wrangling to distract from the importance of developing a more
cost effective and accountable method of funding capital infrastructure.
-
BBC Scotland opinion poll, April 2007. Building
and running state schools and hospitals through public bodies
is the top priority for Scottish voters.
http://news.bbc.co.uk/1/hi/scotland/6526715.stm
-
House of Commons PAC Report - HM Treasury:
Tendering and Benchmarking in PFI.
http://www.publications.parliament.uk/pa/cm200607/
cmselect/cmpubacc/754/754.pdf
-
Lifting the Lid on PFI, Scottish Left Review.
Issue 43. Jim and Margaret Cuthbert.
http://www.scottishleftreview.org/
index.php?action=article&docid=409
-
At What Cost : a UNISON Scotland report
on the aggregate costs of PFI/PPP projects in Scotland - and
some suggestions on a way forward. This is attached to this
submission and is also available online at:
http://www.unison-scotland.org.uk/comms/atwhatcostoct07.pdf
UNISON Scotland PFI info:
http://www.unison-scotland.org.uk/comms/pfi.html
UNISON UK website PFI info:
http://www.unison.org.uk/pfi/index.asp
For further information please contact:
Matt Smith, Scottish Secretary
UNISON Scotland
UNISON House
14, West Campbell Street,
Glasgow G2 6RX
Tel 0845 355 0845 Fax 0141 342 2835
e-mail matt.smith@unison.co.uk
