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P&I Team Briefings Home | Responses | PFI Index | Policy Guide

PFI - the gravy train rolls on

A briefing on the Private Finance Initiative
June 2002, issued by UNISONScotland for branches

PFI firms Balfour Beatty and Amec have announced massive increases in profits. 20% for Balfour and 18% for Amec. Balfour Beatty reported equity returns of up to 18% from PFI projects compared to 3-4% for traditional engineering projects. They also emphasised the value of long PFI contracts which "will generate stable and growing profits and cash flows over a long period, even if we never win another concession". Not many taxpayers are getting 18% return on their investments. But those same taxpayers are funding government largesse to the PFI industry!

Another big PFI beneficiary is the Royal Bank of Scotland whose profits soared by 32%. Its corporate banking division recorded a 122% increase in profits.

Staffing deal painfully slow

UNISON continues to press the Scottish Executive to agree a staffing framework for all PPPs, building on the work done in the NHSiS Partnership Forum. Progress is Painfully slow. We hope the new Memorandum of understanding between the Executive and the STUC will put a renewed urgency in the process.

NOT delivering for Scotland (or the UK)

In February, the Prime Minister launched a glossy pamphlet Reforming our Public Services: Principles into Practice. Reform is based on four principles; national standards, devolution, flexibility and choice. The practice appears to be based on PPPs, which we are told are "innovative" and "different from privatisation". Evidence Tony? Where the private sector is used "it should not be at the expense of proper working conditions for the staff". This assurance was somewhat devalued by a leak on the same day which suggested that ministers were planning to renege on promises to end the two tier workforce and include pensions in TUPE.

In Scotland, Jack McConnell MSP held a similar event at the SECC. Entitled Delivering for Scotland, the FM's document has five key areas, five key principles and (yes, you guessed it) five tests of spending. Less emphasis on privatisation although reference was made to using "public and private resources". The conflict between many of the principles (openness etc) and PPP/PFI was highlighted in the question and answer sessions.

Scottish Organiser, Dave Watson however, presented a paper to the STURN conference in Dundee on 12 February entitled Private Finance -Modernisation or Manipulation? This paper examines how PFI is manipulated to privatise Scotland's public services and demonstrates that private finance is incompatible with the First Minister's vision for Scotland's public services. Interesting conflicts in audit privateers UNISON Scotland has circulated to branches a list of all external audit appointments in Scottish public authorities.

There has been a significant growth in the use of private firms in recent years and potential conflict of interest crops up as highlighted over the role of accountants Arthur Anderson in the Enron collapse. PriceWaterhouseCoopers have been appointed as auditors to 22 authorities and they have a large PFI practice involved in 132 projects across the UK.

KPMG and Ernst & Young have also benefited from the privatisation of the audit function. We would be interested to hear from branches who believe there may be a conflict of interest in their authority.

Best Value? - 1

Andy Kerr, Minister for Finance and Public Services has announced that Best Value, will not only be applied to Local Government in the forthcoming Bill, but will be applied across the public sector including the Executive itself, Non-Departmental Public Bodies (Quangos to you and me) and Health Boards.

Whilst claiming that this would lead to delivering the best possible services at the best possible cost - not the cheapest, Mr Kerr was silent on the conflict between Best Value and the excessive costs of PFI and PPP. Still at least it should put the final nail into the CCT coffin.

Best Value? - 2

An exchange between Glasgow City Council officials and MSP's has highlighted the inflexibility of PFI.

Discussing the potential effect of free school meals, the Glasgow officials pointed out that their PFI scheme was based on the system now - not with an increase in take up. "We would need to go through the whole process again if we had to ask them to change their facilities." said Glasgow's David Melvin, "That was never allowed for in the costings we have projected for the next 30 years."

Seems like UNISON has been saying this for some time!

Politicians doing good

Scottish Secretary Matt Smith has welcomed a motion moved in the Scottish Parliament by Trish Godman MSP (Convenor of the Parliament's Local Government Committee) commending Scottish public service employees.

It recognised that public needs "are best met by services, utilities and resources that are retained in the public sector and managed and staffed by those who have a sympathetic understanding of and engagement with a public service ethos". Sentiments we heartily concur with.

Credit also to Robin Harper MSP and Bill Miller MEP for highlighting the UK government's opposition to the EU draft procurement directive that would ban the selection of preferred bidders before a contract has been developed.

The Local Government Committee has also published a report into Scottish Local government finance, calling for return of the business rate to local authorities and other progressive steps. Scottish Schools at risk UNISON Scotland has published a briefing examining the outline business cases for the current school PFI bids. 16 bids have been submitted worth around £2bn although the available subsidy is unlikely to exceed £500m.

The briefing highlights the absence of transparency, the purely notional risk transfer and a substantial affordability gap in most bids.

Despite the amount added to the Public Sector Comparator for so-called' risk transfer', in all the Outline Business Cases (OBC's) UNISON has seen- if the contract is terminated by company failure or by poor performance, the authority picks up the bill. Some risk!

We can't be absolutely sure the Risk figure is only added to make the private sector quote look reasonable - but that's only because one council erased all the figures before giving UNISON the OBC! South Lanarkshire obviously knew it had something to hide!

If these bids are accepted a huge section of Scotland's education system will be privatised.

A new critic of school's PFI is the Roman Catholic Church. They have recognised that the school rationalisations, that are one of the ways of bridging the affordability gap in schemes, could reduce the number of Catholic schools in Scotland.

Local government future debt danger

Research undertaken for the SNP claims that local councils will be faced with at least £3000m of debt for PFI schemes on capital assets worth only £500m. Local authorities will receive nearly £40m in "level playing field" PFI subsidies from the Scottish Executive in 2002-03.

On a more positive note, the forthcoming Local Government Bill includes a proposal to amend s94 controls which place constraints on the borrowing powers of local authorities. UNISON will be pressing for its abolition, allowing councils to make their own decisions about capital investment. But this will only give councils a real choice if the system of PFI credits or level playing field payments are also reformed.

We will be looking for the Local Government Committee, who have already questioned the wisdom of PFI, to make these points during their scrutiny of the Bill.

Scotland -PFI capital

There are now 42 operational PFI projects in Scotland with a further 47 in the pipeline. The total capital value exceeds £2.6bn. Local government tops Scotland's PFI league with £957m. Health has crept back to second place (£664m) ahead of water (£654m).

On paper 2001 was a bad year for PFI in Scotland with only four new schemes being advertised. However, this hides a shift towards broader PPP schemes, which are subject to even less public scrutiny than PFI. Housing stock transfer, public transport and water authorities are the main culprits. In addition lots of new schemes are on the horizon including a massive privatisation of schools, prisons, roads and the NHS in Glasgow.

£300m IT PFI to collapse?

The Lord Chancellor's Department are reported to be about to pull the plug on the £300m IT PFI designed to ease the transfer of case files between 500magistrates courts in England. It has had a number of reported troubles, and, like the IT PFI in the Passport Office looks like being yet another PFI failure for the Government to live down.

Yet another list of PFI failures

The latest PFI failure is Dundee's Baldovie waste to energy plant. The plant has rarely operated at full capacity due to technical problems and has been reported as being in financial crisis. The engineers responsible for this plant? None other than Balfour Beatty! Where there's muck there's brass!

Edinburgh Royal Infirmary PFI has already run into financial problems just as the first phase opens. A £40m shortfall has been identified due to over-optimistic claims about the value for money of PFI. Sounds familiar? You heard it from UNISON first!

The Dalmuir sewage plant is still not meeting its discharge consent nine months after it should have done, and has been reported to the Procurator Fiscal. Other water PFI failures we highlighted in the last bulletin continue to dog the industry. No wonder a new scheme hasn't been advertised since 1998.

East Renfrewshire are in dispute with Jarvis following the damage caused when a roof blew off a PFI school. The damage could run into hundreds of thousands of pounds. Who had to step in and clear up the mess? The DLO!

A pilot scheme to contract out social work services in Scottish prisons is costing up to 70% more. Despite the extra cost the service has been reduced and in Edinburgh the prison service has been forced to ask the City Council to bail it out by providing an interim service.

Nine months into their contract, Amey Highways had been issued with 19default notices over their contract to maintain Scotland's trunk roads. Amey are also key partners in the Glasgow and Edinburgh schools PFI schemes. Watch this space!

The Skye Bridge, Scotland's first PFI scheme is back in the news. The House of Lords, Statutory Instruments Reference Committee is assessing the legality of tolls. If campaigners are successful the already enormous costs of this PFI scheme will increase dramatically.


P&I Briefing No29 explains the threat to public services of the government signing up to the General Agreement on Trade in Services. Support for this position also comes from the Director of Universities Scotland who warned the Scottish Parliament that GATS could destroy higher education as we know it.

New materials

Understanding the Private Finance Initiative: This UNISON guide is aimed at School Governors which, as it suggests, is written with English schools in mind. However, if you ignore the references to the English education system the guide contains many useful points which branches facing schools PFI schemes will find helpful. (Stock no 1967) £10 per copy to non-members

Public Service - Private Profit how the fat cats got the cream is a report for UNISON by the Labour research Department which highlights the payments to Directors of the top 20 companies benefiting from government privatisation plans. (Stock no 1945)

Small amounts of the UNISON materials can be obtained from UNISON House, 14West Campbell Street, Glasgow G2 6RX. Tel. 0141 332 0006. Communications Officer, Chris Bartter is also available to assist branches in producing local campaign materials. His e-mail address


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UNISON's campaign against PFI in Scotland is co-ordinated by Scottish Organiser, Dave Watson.

If you have news of PFI developments in your area, Dave would like to hear from you. He is based at
14, West Campbell Street,
Glasgow, G2 6RX.
Tel. 0141 332 0006.
Fax. 0141 331 1203