The beginning of the end of PPP in Scotland

Scotland’s first Public-Private Partnership school project has finally ended, after placing huge financial strain on its host council for a quarter of a century.

In 2000, five schools were built in Falkirk at a cost to the developers of around £65 million. For that, the Council is expected to have paid somewhere in the region of £314.5 million over the course of the contract plus a final balloon payment of £5 million. In effect, the Council bought five schools for the price of twenty-five compared to what it would have cost had they been enabled to directly procure the schools.

These schemes were invented by the Conservatives in the early 1990s but were seized upon by the Labour government in the late 1990s and early 2000s as a means of hiding the UK’s budget deficit by moving capital projects “off-book” into private contracts, regardless of the overall cost. At one point, then-Chancellor Gordon Brown all but banned Councils from seeking cheaper financial plans by declaring PPPs to be “the only game in town”.

Now that this contract is ended, the Council is expected to save something like £2-3 million a year in “service fees” as it takes the schools back into direct ownership.

One telling moment in the press release is that Falkirk expects now to be able to deliver “consistent service standards” across the schools as well as being able to make much-needed improvements such as energy efficiency retrofits and solar panel installations.

Think about what that means - it means that the PPP project was, in effect, holding back students in Falkirk by maintaining their buildings inconsistently and not doing the work required to enable students to learn in the best possible environment. These projects did not deliver on financial efficiency and they did not deliver on quality.

This inefficiency, building one school for the price of five, was not uncommon in the early days of Scotland’s PPP projects and the current Scottish Government has made a certain amount of political capital from its “improved” version known as NPD which limited the amount of profit a private company could extract from providing public services but even under that scheme ratios of one school for the price of three was not uncommon. NPD has, itself, been ended for new projects after it was determined that they could no longer be used to hide debt “off-book” and the Government would have to start declaring them against its devolution-restricted capital limits.

Since then though, the Scottish Government has adopted a new model of public private finance known as MIM (all of the various types of PPP projects appear to have obscure three-letter abbreviations) which, if anything, represents a step backwards in terms of risk and inefficiency.

Common Weal has reported extensively over the years about the problems with PPPs beyond the extreme expense, including the lack of transparency in the contracts, the high risk of failure built into the schemes that would see Councils pay the price for developers bailing out and the high risk of PPP projects being owned or being bought by companies based in tax havens.

This might be the beginning of the end of the first generation of PPP projects that have delivered sub-standard schools, hospitals and other public buildings only at great expense to public funds but a new generation of projects stands to repeat this mistake. Scotland needs to do more to bring more of these projects “in-house” and to directly build infrastructure again. It is currently party policy for both the SNP and the Scottish Greens to launch a Scottish National Infrastructure Company based on our blueprint that would enable us to build better schools, more cheaply and to be able to keep them updated with current needs - rather than just shovelling money at tax haven companies while playing a financial game that should never have been played.