Official Report 1155KB pdf
The next item of business is a members’ business debate on motion S6M-16287, in the name of Kenneth Gibson, on the on-going impact of PFI/PPP on Scotland’s public finances. The debate will be concluded without any question being put.
Motion debated,
That the Parliament believes that the total unitary charge payments associated with Public Private Partnership/Private Finance Initiative (PPP/PFI) contracts that were paid across the public sector in Scotland from 2006-07 to 2022-23 amounted to £14.173 billion; understands that PFI/PPPs are long-term contractual arrangements between a public sector entity and a private sector provider, which were introduced by the Conservative UK administration in 1992 and then expanded by Labour following its 1997 election victory; believes that the total PFI and PPP unitary charge payments to be paid across the public sector in Scotland in 2025-26 will be £1.25 billion, the highest in a single year, with the remaining cost associated with PFI/PPP being £14.699 billion from 2023-24; understands that, by 2038, North Ayrshire Council will have paid £440.1 million for four schools that were built for £83 million; notes that research carried out by the National Institute of Economic and Social Research shows that successive UK administrations have made payments to private companies associated with PFI contracts at, on average, more than three times the cost of construction, with said companies distributing £300 million in dividends to investors from £1 billion in profits between 2005 and 2022; recognises that the scheme was abandoned by the UK Government in 2018, 11 years after being replaced with an alternative model known as non-profit distributing (NPD) by the Scottish Government to limit excessive private sector profits; notes with concern media reports that the Chancellor of the Exchequer, Rachel Reeves MP, is considering relaunching the PPP funding model frequently used by Tony Blair’s Labour administration; considers PFI/PPP to have had a disastrous impact on Scotland’s public finances, and notes the calls for the UK Government to end what it sees as its obsession with PFI/PPP.
12:48
I say to Graham Simpson, “Come on in—the water’s lovely.” [Laughter.]
I thank Ross Greer, Maggie Chapman and my Scottish National Party colleagues, whose signatures ensured that the motion could be debated. I apologise for an error in the motion. According to updated figures, North Ayrshire Council will actually end up paying £3.3 million more than the motion suggests.
In August, the Financial Times reported that the Chancellor of the Exchequer was considering funding the £9 billion Thames crossing using a private finance initiative-style funding arrangement. NHS England chief executive Amanda Pritchard has made similar suggestions for the national health service. That should send a shiver down the spine of everyone who recalls the new Labour years.
PFI was introduced by John Major’s Tory Government in 1992. The idea was that private companies would fund, build and operate public infrastructure using special purpose vehicles that would involve a consortium of companies, in return for long-term payments from the public sector. Sold as a way of financing public projects without immediate capital spend by the Government, the real purpose of PFI was to keep UK Government debt off the books in order to comply with the debt limitations that were set out in the Maastricht treaty of 1991.
In Scotland, PFI began under the then Secretary of State for Scotland, Michael Forsyth MP. The publication in 1996 of “Public Services and Private Finance: A Partnership for Scotland” gave the game away by outlining the scope for higher profits that the private sector would have access to. Exemplifying the worst of the pre-devolution political order, PFI was imposed despite widespread opposition from Scottish civic society, trade unions and every political party bar the Tories. The 85 SPVs that run Scotland’s PFIs have 51 shareholders. Only seven companies own more than half the stock and debt: Barclays, Innisfree, Bilfinger Berger, Balfour Beatty, ABN AMRO, John Laing and HISL.
PFI was derided for waste, poor value for money, inflexibility—particularly in reference to highly complex contract termination procedures—and the huge profits generated. However, there is no zealot like a convert. Having railed against PFI in opposition, Labour in office opened the floodgates with an evangelical enthusiasm that few could have foreseen. When new Labour proposed changes to reinvigorate PFI, the unconcealed glee of financiers should have been an early warning sign. Under the new regime, the private sector would be allowed to earn profits without bearing any risks. The new PFI contracts—renamed public-private partnerships—lacked clauses allowing the Government to recoup windfall profits.
Under those lucrative terms, the private sector gorged itself on PPP deals, while Labour boasted that projects worth £14 billion would be agreed by the end of 1999, all while local authority capital budgets were cut and Chancellor Gordon Brown stuck to Tory spending rules. PPP fervour trickled down the Labour Party, and its parliamentarians, too, were amazed by the level of investment and not concerned enough to ask many questions.
In this Parliament’s first-ever SNP-led Opposition debate on 24 June 1999, Labour, Tory and Lib Dem MSPs came out to bat for PPP. Speaking in that debate, I took seven interventions from such illustrious colleagues as Jack McConnell, David McLetchie and Keith Raffan. Protests about PPP’s obvious flaws were dismissed, with claims that if someone was against PPP, they must also be opposed to the new school or hospital in their area. Thus, Labour blithely condemned Scottish public services to unprecedented debt levels for decades.
Even now, nearly 18 years after Labour left office at Holyrood, the extent of its PPP profligacy is staggering. Labour built a debt mountain so high that we have yet to reach the top, but we will soon. Annual payments are still rising and will peak at an eye-watering £1,250 million this coming financial year. Total remaining PPP debt in Scotland is projected at £12,483 million for 2025-26. North Ayrshire Council will have to pay more than £16 million next year for four secondary schools that were built nearly two decades ago—schools that still had snagging problems two years after completion. That sum limits the council’s ability to invest in jobs and services. By the time the contract ends in 2038, it will have cost £443.4 million for schools worth £83 million.
The member is making a splendid speech. I remember my time in Westminster, when Meg Hillier, who was at that point the chair of the Public Accounts Committee, noted that the issue of debt in that type of contract was primarily to remove it from the balance sheet of UK plc, because neither Government wanted the people to know just how broke the UK was. Does the member agree?
I agree. I touched on that earlier in my speech, and I will touch on it later.
Kilmarnock prison was built for £32 million and went into operation in 1999. By the time the contract ended last year, taxpayers had shelled out £367.64 million. The contract for a £45.5 million waste water project in Levenmouth required an astonishing £721.2 million in repayments, which is a shocking 16 times the original cost. PPP remains a millstone around the neck of Scotland’s public services. To put its impact on local authority finances into perspective, 31p in every pound of council tax raised in North Ayrshire goes towards the council’s PPP obligations. Stuart McMillan will be interested to know that, in Inverclyde, it is 45p in every pound of council tax raised; in Clackmannanshire, it is 52p. As Michael Marra is the only Labour member present in the chamber, I advise him that, in Dundee City, 32.4 per cent of all council tax raised will go in PPP payments this year.
In many cases, the public will not even own the buildings by the time that the contracts end. Research by BBC Scotland revealed that there are 11 PPP contracts expiring in which the public sector will have to shell out tens of millions to actually own the buildings that it has spent years paying through the nose for.
Thankfully, once in government, the SNP took swift action to abolish PPP. Through the non-profit-distributing model, schools and hospital construction projects were financed through conventional means or via the Scottish Futures Trust, with private profits capped at 5 per cent and surpluses directed to the public sector. NPD projects average 58 per cent of the repayment costs of PPP projects, with most of the costs going on interest payments. Had the projects that were funded through NPD been carried out under PPP, the Scottish taxpayer would have been on the hook for an additional £7,735 million over the life of those contracts.
Holding this debate is not just about giving a history lesson or taking a trip down memory lane, though; it should sound a warning. Although our current chancellor’s CV might not be as impressive as Gordon Brown’s, the situation in which she finds herself has parallels with his. We have a Labour Party Government that came to power by attacking to the centre and beyond; that is unsure of what it believes in; that promises investment to repair Britain’s crumbling infrastructure, balanced against self-imposed fiscal rules that are aimed at wooing the City; and that has a large enough parliamentary majority to override scrutiny or backbench rebellions, albeit that 19 newly elected Labour MPs have already been expelled, suspended or resigned.
The attractiveness of PPP to Governments looking to keep debt off book diminished as Eurostat rules on accounting for European Union member states led to the majority of such projects being classed as public debt. However, following Brexit, there is nothing to prevent the UK from deviating from that in order to reconcile contradictory electoral promises.
The legacies of PFI and PPP are a stark reminder of the danger of prioritising short-term gains over long-term sustainability. We must never return to wasting tens of billions of pounds on PFI and PPP deals in Scotland, and we must ensure that future generations are not burdened by the same mistakes. That Labour would even consider the return of PFI shows that it cannot be trusted with Scotland’s finances. The UK Government should rule out any return to PFI, and Labour in Scotland should make its own opposition crystal clear.
We move to the open debate. I advise members that we are tight for time, given this afternoon’s 2 pm start, and we must also leave sufficient time for security staff to clear the chamber. Therefore, I must insist that members stick to their allocated speaking time, which is up to four minutes.
12:56
I thank Kenneth Gibson for lodging the motion so that we could have this important debate on the on-going cost to the public sector of using the private finance initiative.
PFI was first used in 1993 by the Tory chancellor Kenneth Clarke. In 1997, it was adopted by Tony Blair’s Labour Government. We should remember that Labour’s reason for doing so was as stated by the then Chancellor of the Exchequer, Gordon Brown, who struggled to provide a rationale for PFI other than that
“the public sector is bad at management, and ... only the private sector is efficient and can manage services well.”
What is the reality of PFI construction projects here in Edinburgh, and in particular for my Edinburgh Pentlands constituents? The new Edinburgh royal infirmary, which was completed in 2003, is one of the most prominent PFI projects in Scotland. It was built at a cost of £184 million, but the total cost to taxpayers over the contract’s lifespan is significantly higher, with estimates suggesting that payments could exceed £1.1 billion by the time of the contract’s conclusion in 2027.
How has that contract performed? In 2022, NHS Lothian said that it was in dispute over the nature and delivery of maintenance and upgrades required for the hospital. The issue has been placed on NHS Lothian’s risk register, where it warns that there is
“a risk that facilities in the RIE are not fit for purpose because of a failure to carry out required life cycle works and maintenance of the estate.”
The risk register lists heating, ventilation, water and window maintenance as some of the life-cycle works that could present a problem. The health board also warned that it could, if necessary, retain some of the PFI payments to Consort Healthcare if the issues were not satisfactorily resolved. However, the complicated deal for the hospital means that, in 2027, NHS Lothian will enter a secondary contract period that could last until 2053, during which time it will still pay a management charge to Consort.
Then there is the Edinburgh schools debacle. In the late 1990s, the Labour-run City of Edinburgh Council embarked on a massive school rebuilding and refurbishment programme under PFI. The total capital cost for the project was around £140 million. The PFI deal was structured over a 30-year period, with the total cost over the life of the contract projected to be much higher, with estimates at well over £500 million once maintenance, operation and finance charges had been factored in.
During a storm in January 2016, nine tonnes of masonry fell when a gable end collapsed at Oxgangs primary school in my constituency. Fortunately, no pupils or teachers were injured. That resulted in 10 primary schools, five secondary schools and two additional support needs schools being closed because of concerns over the standard of construction across the city, impacting the education of around 7,600 pupils. The impact of those PFI projects in Edinburgh has been criticised for their inflated costs to the public sector, which are often much higher than if the project had been constructed using public borrowing and public procuring.
It is reported that Rachel Reeves may again be considering PFI. She should consider the words of a former chairman of the Royal Bank of Scotland, Sir Howard Davies, who, in 2018, made an admission on BBC One’s “Question Time” when he stated that PFI had been a “fraud on the people”.
13:00
I was feeling a bit lonely over on the Conservatives seats—as lonely as Mr Marra is. I wanted to give my good friend Mr Mason some company, but apparently he did not want it.
I thank Kenny Gibson for bringing the debate to Parliament. It is a very political motion, but I think that that is fine; MSPs should be able to debate such things. He managed in the motion and in his speech to savage both Labour and the Conservatives, but not, apparently, the virtuous Scottish National Party. Of course, he is entitled to that view—perhaps he is seeking re-election. For me, the serious questions raised are entirely valid. The main question is whether PFI and PPP represent value for money and what happens when they end.
I will take the first part of that question first: are they value for money? There is not really an easy answer to that, because, as the Scottish Parliament information centre said in its blog on the subject in January 2018,
“For the 129 projects that have been privately financed in Scotland, repayment costs will total £39.7bn, more than four times the capital value of the projects. However, bear in mind that these repayments often cover more than just the construction costs and interest costs. They will include the costs of maintaining the building (or other asset) and may also include other services, such as cleaning and catering, although this is less common with more recent projects.”
Is it not a major concern, though, that, in many cases, after shelling out huge amounts of money for those projects—I quoted the Levenmouth waste water project that cost 16 times the original estimate—the public sector does not always own them?
Indeed, and I am coming on to that issue.
The Auditor General for Scotland and Accounts Commission said in their report of January 2020:
“Using private finance contracts has enabled the Scottish Government to fund additional infrastructure investment. ...
“Private finance costs more than traditional forms of financing, such as public borrowing or capital grants. The Scottish Government has accepted these additional costs as part of its priority of investing in infrastructure”.
A number of private finance contracts are due to end, with some requiring a final payment to the private consortium. The private finance contracts in the health service that are due to expire are for Tippethill hospital in Bathgate and New Craigs hospital in NHS Highland, which expire in 2026; for Carseview centre in NHS Tayside and Larkfield in NHS Greater Glasgow and Clyde, which expire in 2027; for the Royal Infirmary of Edinburgh, which expires in 2028; and for Ellens Glen house in NHS Lothian and Wishaw general in NHS Lanarkshire, which expire in 2029. What happens after those dates is not clear.
That was also evident when I asked at the Public Audit Committee last year about the future of the police college at Jackton in East Kilbride in my region. The contract for that is due to end next year, but when Neil Rennick, the director general for education and justice, wrote to the committee on 26 July, he was not clear about what the costs would be for exiting; instead, he used a lot of Governmentspeak and talked about options, negotiations and a business case. It is important that we have greater clarity about that.
Looking ahead, and this is where Mr Gibson should be cautious, we have the mooted mutual investment model, which will apparently be used to fund parts of the A9. I call that a rent-a-road scheme. If we do not get it right, the same gripes about value for money and paying over the odds will just resurface.
13:05
I welcome the debate that Kenneth Gibson has brought to the chamber. He uses the time usefully, given the long view that he brings as a long-term member of this Parliament and as a result of his service in local government.
After 14 years of Tory stagnation and decline, we can all agree that there is a vital need to drive growth and rebuild our public services. We have a Scottish national health service that is in perpetual crisis, crumbling schools and overcrowded prisons. Tackling those problems will require significant capital investment.
This Scottish Government and the next Scottish Government will work alongside the private sector and the public sector to deliver progress. I know that Mr Gibson agrees with that analysis, and he has set some of that out in his speech.
The first PFI contracts to which Mr Gibson referred—at length and rightly—were written when I was starting secondary school in St John’s high school in Dundee. They have been around for a long time, and Mr Gibson and other members are right to refer to the fact that many of them are still with us. It is essential that we learn the lessons that members are already setting out about the value in those contracts over time. It is particularly important to set out the context around historical examples and why some of those decisions were taken. However, there is no doubt that those contracts still place a heavy burden on council tax payers in parts of Scotland, even as many constituents continue to use the facilities that are in place.
The UK Chancellor of the Exchequer has unequivocally confirmed that there will be no return to PFI during her tenure. I have seen the reports that are referenced in the motion, but the chancellor has been quite clear about that.
As Mr Gibson pointed out, the Treasury is dealing with a time of constrained public finances, for different reasons than those that pertained at the time of the advent of the UK Labour Government in 1997. We have to make sure that we can get public finance off the ground in order to get key projects working and get the economy growing. Again, that is an agenda that many people would agree with.
It is right, however, that we draw a distinction between the original early PFI arrangements from a generation ago and the subsequent arrangements between public and private sectors to bring capital investment to the table. The non-profit-distributing model is a variation on that core principle, and it has to be said that the SNP Government’s involvement in those public-private arrangements dwarfs that of the previous Scottish Executive on the basis of longevity alone.
No SNP member can credibly claim that the dealings of this Government with the private sector have been trouble free. From Ferguson’s shipyard to the Lochaber smelter and the disastrous mishandling of the administration of the deposit return scheme, which has resulted in a private company suing the Scottish Government, the taxpayer is on the hook for hundreds of millions of pounds.
We also have to think about this Government’s chronic failure to deliver major capital projects. [Interruption.] I see that I am shedding some light on the chamber at the moment, for everybody's benefit. The A9 remains something of a Sisyphean task for this Government, although, to be fair to Sisyphus, at least he was doing something. Further, the replacement of HMP Barlinnie is now costing 10 times the original estimate, NHS capital projects are frozen, with no clarity for patients or staff about when major projects will even begin, and the Scottish Government’s capital spending plans—first promised in December 2023—have still not materialised.
Crucially, the manner in which those things are done is hugely important, but actually doing them would be a start.
I advise members that we are looking into the reason for the sudden increase in light in the chamber. Hopefully, we can resolve that.
13:09
I thank Kenneth Gibson for giving us the opportunity to debate the issue of PFI legacy debt.
To be generous, PFI was introduced by Governments for the right reasons, or at least with the right motivation behind it: a need to improve our public infrastructure, schools, hospitals and so on.
It certainly compares well with what we have seen under 14 years of Conservative Government, which slashed capital budgets and oversaw a huge decrease in investment in our national infrastructure, both public and private, with all the resulting economic damage. It has left us with a heavy burden. In 2023, it was reported that £8.5 billion would be paid for £2.9 billion-worth of infrastructure in Scotland, and the English NHS will pay back £80 billion for £13 billion of infrastructure, according to the Institute for Public Policy Research.
It is not just a case of there being a transfer of money from the public to the private sector; much of the money has been transferred out of Scotland and out of the UK entirely. There is a huge amount of evidence showing that PFI profits have been offshored into tax havens. The model has no benefit for the UK economy whatever, and there are no benefits for private businesses that are based in the UK.
In 2019, the then First Minister, Nicola Sturgeon, announced that the Government would consider setting up a national infrastructure company as one of the ways that it could move away from the model. The Infrastructure Commission for Scotland was tasked with considering that. In the end, it recommended against it, but we need an alternative. We need to look at how we can fund critical infrastructure. Giving the Scottish Government the same prudential borrowing powers that local councils have would certainly help, but, of course, any borrowing results in a debt that needs to be paid.
In 2019, at the same time that the then First Minister made her announcement, the Parliament passed the Planning (Scotland) Act 2019, which created a power for local government to charge an infrastructure levy on private housing developers—if they were to profit from the creation of large numbers of houses, it was only right that they made a contribution towards local services, such as schools and health centres, which would be required to create a community. I was disappointed when the Government announced last year that the introduction of the infrastructure levy power was being dropped, although I am grateful to the Minister for Public Finance for his offer to meet me to discuss that. I do not think that the existing section 75 contribution arrangements are in any way adequate. That is why the Parliament agreed to introduce the infrastructure levy power to fund critical local infrastructure.
There are other ways that we can address the issue. We could make existing processes more efficient. There is a lot to learn from the learning estate investment programme, for example, and the collaboration between the Scottish Government and local government on that. Having a central resource for local government to help it to manage projects at every stage, from design, financing, the management of construction and the management of the asset, would be incredibly helpful to councils, which cannot ever realistically have all the skills and expertise that they need for those projects in house.
I recognise that when the SNP came into government, it tried the non-profit-distributing model. I am not quite as positive about that as Mr Gibson; although I think that it was well intended, it has not effectively capped profits. Dumfries hospital is a good example of where it did not really work in practice.
As we heard from Mr Simpson, many, although not all, PFI contracts contain punitive clauses. In 2004, the then Scottish Executive ended the Skye Bridge contract and rebought it. In closing, I ask the Scottish Government to work with local authorities to review which PPP contracts could be brought back in or could be cancelled early at reasonable value for money for the taxpayer. That was done in Greece with some of its odious debt on the back of its financial crisis in 2015. There is no easy way out, but we need to reduce the toxic legacy and be honest about how we develop the alternatives to pay for the infrastructure that we all agree is required.
13:13
I am grateful to my colleague Kenny Gibson for securing this motion for debate in the chamber. Like me, Mr Gibson has concerns about the negative impacts that the PPP and PFI burden has inflicted on the public sector. It is yet another real example of Labour’s desire to replicate Tory party policy, and the debate serves as a stark reminder of why the Labour Party cannot be trusted to manage Scotland’s finances.
PFI and PPP contracts have left a harmful and lasting legacy in Scotland. They were first introduced under the Tory Westminster Government in 1990 and fully embraced by successive Labour Governments in Westminster and Holyrood. However, although they were posed as effective solutions, they have instead burdened Scotland’s public services and taxpayers with unsustainable financial sums for decades. According to Professor Ciaran Connolly,
“They produced projects with assets worth approximately £60 billion, which are costing the taxpayer £170 billion—that’s a gap of £110 billion between what the assets are worth and what the taxpayer is paying for them.”
Costs end up getting passed on to the taxpayer, which, as Professor Connolly has said, can constrain
“what authorities such as the NHS can spend on essential services, forcing them to reduce budgets accordingly. It has also created pressure to reduce project costs, leading to poorer infrastructure.”
That impacts on local council budgets, too. In my constituency, 37.9 per cent of council tax in East Dunbartonshire and 41.2 per cent of council tax in West Dunbartonshire goes on PPP payments.
Labour’s financial mismanagement has had severe consequences, and its wasteful PFI deals have foisted a £30 billion repayments bill on Scottish taxpayers, forcing us all to pay many times more than the original cost of the projects. The funds that are used to pay for those agreements would have been much better spent on our public services to support education or tackle child poverty.
Instead, it was left to the SNP to fix Labour’s mess. Under the SNP Scottish Government, we moved away from that model to a model under which, importantly, surpluses do not go into the pockets of big investors, as Labour allowed. One perfect example is hospital car parking charges, which are a terrible legacy of PFI; the Scottish Government scrapped the charges that were in place as a result of Labour PFI deals.
Scotland continues to pay extortionate amounts for Labour’s incompetence. The 2023 figures show that the amount still owed under PPP for hospitals and schools is £15.4 billion, which is not even half of Labour’s eye-watering total PPP bill.
The contracts are not just an enormously expensive way to borrow—they are often inflexible. A 2019 report by the JPI Media investigations team found that schools, hospitals and police forces have been locked
“in the iron grip of contractors”,
and are paying extortionate extra charges. Examples in that report included a school being charged £25,000 for three parasols and a hospital trust paying £5,500 for a new sink. The contracts are extremely profitable for the private sector, but not for the taxpayer.
Nearly 18 years after Labour was kicked out of office in Scotland, we are still paying a heavy price for the disastrous PPP contracts. The Scottish taxpayers have had to shell out enormous sums of money above the actual cost of projects, while PPP contractors hoard huge profits. It is clear that PPP contracts have been disastrous for Scotland’s public finances, so it is welcome that the Scottish Government recognises those options for what they are—extremely poor value for money and certainly not in the best interests of the Scottish people.
13:17
I am grateful to Kenneth Gibson for bringing this debate to the chamber.
PPP and PFI are long-term contracts under which public sector organisations pay annual charges to private companies for capital projects such as schools and hospitals. The Conservatives might have introduced the schemes, but previous Labour Governments enthusiastically rolled them out. Given that the Scottish Government continues to face the most challenging financial situation since devolution, it is right that we look at the drain of having to repay dodgy PFI deals.
Labour has not been in government in Scotland for 18 years, yet, since it left office, Scotland’s public services have been saddled with well over £14 billion in repayment charges. As Mr Gibson has pointed out, Scotland’s public services will repay a shocking £1.25 billion in PFI and PPP charges in 2025-26. Over the years, the private companies that benefit from those deals have distributed hundreds of millions of pounds from their huge profits in dividends to investors. In other words, cash is being diverted from front-line health, education, transport and justice services into investors’ pockets.
I will focus on East Kilbride, where Hairmyres hospital was rebuilt more than 20 years ago with a capital value of £68 million. This year alone, NHS Lanarkshire will pay around £27 million in PFI charges for the hospital, enough money to pay the salaries of around 850 new nurses. Shockingly, the deal is a 31-year contract, and it is estimated that, overall, repayments for Hairmyres will total around £700 million, which is more than 10 times the original capital cost—and an absolute disgrace.
It is not just the NHS that is saddled with large payments. South Lanarkshire Council is paying around £43 million this year.
Will the member take an intervention?
Yes, I am happy to.
Does the member agree that we need much greater clarity on what will happen when the deals expire, including those for the large number of health service facilities?
I whole-heartedly agree that we need more information on what happens when the contracts expire, particularly given the scale of money that we are talking about.
This year, the charges for some schools mean that almost 32.7 per cent of council tax receipts will go towards PPP payments. Over the 33-year contract, the council will pay back an estimated £1.25 billion. On its website, this Labour-run council boasts that it
“is among the biggest UK-wide education public-private partnerships.”
Perhaps it should be straight with the public when talking about local government financing, because dodgy Labour decisions of the past are an on-going drain on public finances.
It gets worse. Despite warnings at the time that capacity would be an issue, the merging of six of East Kilbride’s high schools into three superschools as part of a costly initiative is now having to be rectified, with more money having to be spent on expanding St Andrew’s and St Bride’s high school.
Labour’s obsession with PPP and PFI is reckless. It has not been in government in Scotland for 18 years, but the deals have had, and will continue to have, a huge impact on public services. Councils, health boards and other public bodies are, on average, paying back more than three times the original capital cost to private companies as part of these long-term deals. In East Kilbride, the Hairmyres hospital deal has offered a tenfold return to investors. That is a shameful legacy of the last Scottish Labour Government—
Ms Stevenson, you will need to conclude.
—which was rightly kicked out of office 18 years ago.
13:22
I congratulate my colleague on securing this debate.
When PFI is mentioned to the public, it does not mean much to them—but it does matter. The abbreviation stands for private finance initiative. In practice, it means private companies building the likes of schools for local authorities, which enter into a contract to pay for the building over a period, often decades. That is key: ownership only passes to the council only at the end of the contract—generally speaking. After all, contracts do vary.
That seemed a whizz of an idea to Labour at UK level, and the party eagerly adopted it when it was in power in Scotland. Shiny new schools—what is not to like? When the SNP came into government, though, the approach was ditched—and for good reason.
Because of PFI, which just means “Build now and pay as you go”, three schools in the Borders—in Eyemouth, Duns and Earlston—that had a build cost of £72.5 million will, as a result of annual payment obligations, actually cost the council £350 million by 2037. By that time, the schools will be pretty old. It is rather like buying a car on hire purchase. We must always read the figures at the bottom of the contract; they can be eye watering, and by the time we own the car, it will be towards the end of its journey. It is the same for schools under PFI.
In comparison, the new Galashiels academy and Peebles high will not be built in that expensive manner. I understand that, in Midlothian, PFI contracts for five schools are costing the council around £1 million per month. I repeat—£1 million a month. We must never forget the damaging on-going costs of those contracts, which reduce by millions the funding that Borders Council and Midlothian Council could be using and putting to better use elsewhere.
Finally, the contracts often come with tough provisions such as paying for private maintenance. In England, private companies are now shirking their contractual repair and maintain obligations, particularly as the contracts come to an end.
The financial burdens bequeathed by Labour remind us not only that it is making an economic mess now; it made one before, and the Borders and Midlothian will continue to pay through the nose for that PFI mess for decades.
13:25
I thank Kenny Gibson for securing this afternoon’s important debate, and I thank all the members who participated.
Across the Parliament, we all agree on the importance of infrastructure investment, not just in creating and supporting jobs and economic growth today, but to ensure that Scotland’s asset base is in place to support the economy of our communities well into the future.
The 2025-26 Scottish budget sets out more than £7 billion of capital spending to eliminate child poverty, grasp the opportunities of net zero, boost economic growth through our infrastructure plans and maintain high-quality public services and infrastructure. That includes using £167 million of financial transactions to support innovation and attract investment.
Although that increase to the capital funding from the UK Government is welcome, it is set within a challenging fiscal context. We still face significant pressures on our capital budget. For example, a high level of inflation experienced in the construction sector has permanently increased the cost of delivering projects.
The Scottish Government has always recognised that public-private partnerships are more expensive in cash terms than capital grant funding for any particular project.
Can the minister tell us why those capital procurement contracts are so much more expensive to deliver in Scotland than in other parts of the UK? Why is there a particular gap—if he acknowledges that—between the cost of delivering a mile of road in Scotland and doing so in other parts of the UK?
I would need to check that that is indeed the case. I do not know whether the member is talking about the cost of projects, which will of course depend on a number of factors, including the geography and so on, or the cost of the private partnership itself, which is hugely expensive for projects across the UK.
In 2007, the new Scottish Government Administration made it clear that the PFI approach used in the past had not delivered best value for the taxpayer in Scotland. It was made clear that PFI was an expensive mistake and no longer a feasible option. The Scottish Government moved away from using PFI for any new projects from May 2007, and it announced the non-profit distribution programme in November 2010. Prior to the NPD programme, the NPD model had been developed as an alternative to PFI in Scotland, and five NPD-type contracts were signed earlier, between 2005 and 2010. The NPD model was further developed by the Scottish Futures Trust, which manages the NPD programme. The programme was delivered through two channels, NPD itself and the hub, between 2010 and 2021, when the last project became operational.
In 2019, the Scottish Government signalled a new approach to revenue finance, due to the implications of classification changes affecting the NPD programme. The classification changes meant that the revenue-funded NPD and hub models were to be classified to the public sector, and they subsequently no longer provided additionality. Revenue-funded NPD and hub models have not been used for any new projects since then. The only private finance approach that is currently available is the mutual investment model, which will be considered alongside a range of other financing approaches.
We have always been clear about our concerns about the flexibility and value for money offered by historic PFI contracts. That is why we brought them to an end. The PFI contracts that remain operational are often complex and need active management, to which the Government remains committed.
However, the termination of any PFI contract is a matter for the public sector body that awarded it. ?PFIs are long-term contracts, where risk and reward were set at the outset. Early termination can be a complex and expensive process, and the costs of breaking long-term contracts are substantial. Each authority would require to consider value for money in that context.
The Government is committed to ensuring that contractual obligations are delivered and that contracts are as affordable as they can be. That is why we asked the Scottish Futures Trust to support public bodies to optimise value for money from their PFI contracts. That assistance is comprised of training and support for contract managers. The SFT can also support bodies in realising contract management improvements, including by rescoping services and optimising risk transfer.
I mentioned the mutual investment model, and so has the minister. Will he briefly explain why he thinks that that model will offer value for money?
The difference between the mutual investment model and other mechanisms such as PFI is that, in the mutual investment model, the public sector partner takes an investment share in the vehicle that delivers the project. The public sector partner takes part in the investment and therefore shares in the profits that come back due to having that equity holding and the way that the project is funded and delivered.
The costs and benefits of pursuing public-private partnerships need to be thoroughly analysed in a transparent manner. In an environment where our ambitions for Scotland’s infrastructure assets outstrip our grant funding from Westminster, the Government will always explore options for delivering capital investment. As members know, we have very limited capital borrowing limits, which constrains our ability to use capital grants to fund asset creation and investment.
Used appropriately, the correct PPP mechanism can allow us to create additionality in the capital budget and result in more investment in Scotland’s assets than we would otherwise be able to deliver. It can transfer financial and maintenance risk from taxpayers to investors. Those risks can include project overruns, change orders, delays, and anything else that may increase the cost of a project.
To ensure that we are considering all the available options, the Scottish Futures Trust was asked to examine new profit-sharing finance schemes, such as the mutual investment model, to help secure the investment that we need and—very importantly—best value for the taxpayer. We are exploring whether to make use of the mutual investment model to invest in Scotland’s infrastructure. Any use will only be considered when it provides value for money for the taxpayer.
The Scottish Government will never return to the PFI model because PFI was an expensive mistake. It simply did not deliver the best value for the people of Scotland. The only private finance approach currently available is the mutual investment model, which shares profits between the public and private sector. That model will be considered alongside a range of other financing options, and we are exploring whether and how best to make use of MIM to invest in Scotland’s infrastructure going forward.
Thank you to all members for their co-operation in respecting the time allocations for speeches, given our resumption at 2 pm.
13:32 Meeting suspended.Air ais
First Minister’s Question TimeAir adhart
Portfolio Question Time