Scotland has the highest percentage of buyouts, terminations or problem PPP/PFI contracts of any nation in the UK according to a new research paper produced this month.
Compiled by the European Services Strategy Unit, the report revealed that almost 10 per cent of all ‘problem contracts’ in the UK are initiated and terminated in Scotland.
The news has campaigners against public-private partnerships in infrastructure building pointing to this report as an example of a need for a new fully public based way of funding projects.
In response to the findings Ben Wray, head of policy at the left-leaning thinktank Common Weal, told CommonSpace:
“This is a comprehensive study of PFI/PPP, and shows Scotland has the worst track record of all four nations of the UK in terms of contracts going wrong. The fact that nearly 1 in 10 Scottish PFI/PPP contracts have to be terminated, bought out by the public-sector or major problems continue to exist with them shows that, far from transferring risk to the private sector as proponents of PFI/PPP argue, this model of investing in infrastructure is highly prone to failure.”
Dexter Whitfield who authored the paper looked at failed projects spanning from the 1990s until deals negotiated in the present day. According to the report, there is a higher proportionate level of buyouts and major problem contracts in Scotland than in England, Wales and Northern Ireland.
The rate of buyouts, terminations and major problem contracts in Scotland was 9.7 per cent compared to 7.9 per cent for England.
Even though the Scottish Government, through its Scottish Futures Trust, uses the non-profit distributing (NPD) projects where private sector profits are capped in competition, it is still criticised as a commercial for-profit model.
The PPP/PFI contracts negotiated under previous Labour and Liberal Democrat government’s in Scotland have ended up either being terminated, face funding shortages or led to public assets being purchased by private equity after the completion. In some cases the local authorities were prevented from buying the assets such as school buildings, sports centres and health centres and secondary ownership was gained by private equity firms with little or no tax being paid.
PFI was originally set up by the UK Conservative Government in 1992, but was enthusiastically copied by the New Labour governments under former prime ministers Tony Blair and Gordon Brown.
The idea was that by involving private equity in public projects you could get big spending “off the books” of the public sector. However such arrangement have led to debts, botched construction jobs and financial crippling of local councils and national accounts for over two decades.
PPP and PFI also have a serious effect on services as they have led to renegotiations and cuts in the wages and pensions of public sector workers. In many instances, the ownership of the assets or buildings were bundled up with ownership by private companies of “associated services” or jobs such as maintenance and catering.
An example is the East Lothian schools project overseen by Ballast UK. Ballast UK went into administration in November 2003 while in the process of refurbishing 6 schools and community centres.
After the parent company withdrew its funding, subcontractors went unpaid and ended up liquidating their assets as Ballast had a 50 per cent share of the infrastructure investment.
Wray added: “This is yet another cost onto the already extortionate debt repayments government has to pay. The private finance approach to public investment needs to be brought to an end in Scotland once and for all.”