Cutting PPP costs to fight Austerity – UNISON Report

“Every sensible mitigation measure government and public authorities can take reduces the number of job losses and damage to vital public services.”
Mike Kirby, Scottish Secretary, UNISON

UNISON Scotland’s September 2015 report Combating Austerity provides a succinct analysis of the problems posed by austerity cuts imposed by the national UK government, and how those can best be mitigated through challenging current PPP contracts, LOBO loans, etc. It shows how savings can be made by bringing back these services in house, and how that could boost the local economy. As explained by their e-briefing:

There are 95 projects that are estimated to pay out over £35 billion in unitary payments. That is the equivalent of the Scottish Government’s annual budget, so the scope for savings is huge.

There are two main ways public bodies could be making savings. Firstly, by monitoring and varying the existing contracts. Secondly, through refinancing.

Unlike traditional contracts, a culture of minimal monitoring has developed in PPP schemes. There is only limited checking if the contractor is actually delivering what they are contracted to do. Any short cuts the contractor is able to get away with goes straight into their profits, so robust monitoring should be the norm. Branches should ensure that all public bodies have dedicated staff assigned to the contract monitoring role and should encourage members to report to poor service to these staff.

Contracts should also be reviewed to ensure they are up to date. PPP contracts typically run for 25+ years. During this time specifications can become out-dated, gold plated or simply not delivered. Indexation can be miscalculated and many pass-through costs don’t give best value. A number of local authorities use consultants from CIPFA to undertake a review and these usually generate savings well in excess of the consultancy costs. NHS Scotland has established a central unit (SST) to do this, developing in-house expertise and building capacity at health board level. More could be done on this issue and branches should be asking employers what action they have or are planning to take.

The really big savings could be delivered from re-financing PPP schemes and bringing them back in-house. In simple terms, public bodies entered into contracts at a time when borrowing costs were much higher than today. If you entered into a mortgage ten years ago, you would not expect to be paying that rate today. Councils could borrow money today by issuing bonds at less than 2%. If they did that to buy out PPP contracts, we calculate that the savings could be as much as £12 billion in Scotland. Finance is the largest element of most PPP schemes.

There are some difficulties, primarily some unwise penalty clauses were agreed on schemes and this reinforces the need to monitor contracts robustly. The Scottish Government needs to take the lead on this because they have a veto on refinancing because of the central funding for schools and NHS schemes. The Scottish Futures Trust is looking at some schemes, but the scale is modest.

Read the report from their campaign website, or download the PDF. You can also download the Toolkit provided for your local group.

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