Scotland to pay £40bn for £9bn private finance deals

A new report from Audit Scotland has said more clarity is required on private finance public infrastructure projects in Scotland.

Audit Scotland said that currently, assets worth £9 billion are under contract and the Scottish public sector will eventually make payments worth over four times the capital value of the assets built — over £40 billion — with £27 billion still to be paid between now and 2047-48.

The watchdog said a £3.3 billion investment programme in Scotland’s infrastructure has enabled more public buildings and new roads to be built.

“But the Scottish Government needs to be clearer about how and when they use privately financed contracts,” said Audit Scotland.

In the new report — called Privately financed infrastructure investment — public sector watchdogs say greater transparency is needed over decision making to show projects represent value for money.

“The Scottish Government accepts that using private finance to pay for public buildings is more expensive than other forms of funding but uses this to enable additional infrastructure investment,” added Audit Scotland.

“Private finance comes at a cost.

“Over the lifetime of active PFI, NPD and hub contracts, the public sector makes annual payments to cover the cost of financing, building and maintaining the assets, as well as other services the private sector is providing. …”

“Currently, assets worth £9 billion are under contract and the Scottish public sector will make payments worth over four times the capital value of the assets built (over £40 billion) with £27 billion still to be paid between now and 2047/48.”

Caroline Gardner, Auditor General for Scotland, said: “The Scottish Government has accepted the costs of using these contracts to increase total infrastructure investment.

“But the impact on future budgets is significant, as is the overall amount of money that will be repaid.

“With the introduction of the Mutual Investment Model, the Scottish Government has an opportunity to be clearer about the additional costs of investment associated with using privately financed contracts for specific projects.

“This will enable better reporting of how the overall combination of project funding is being used to maximise the benefits of investment across the whole public sector.”

Graham Sharp, Chair of the Accounts Commission, said: “We’ve found that local councils have been left with limited options other than to construct new and replacement public buildings through private finance deals.

“The main consideration for councils has been the affordability of repayments, with little focus on the wider implications of using private finance.

“With a new mechanism for funding Scotland’s schools infrastructure, local councils must be fully aware of the benefits and risks of funding the entire construction costs with a mix of capital grants, borrowing powers and other resources.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.