“Lucrative Contracts for Businessmen” was the headline in Scottish Business A.M. (20/09/00) in response to the announcement that the Scottish Executive was to launch a substantial increase in the use of Public Private Partnerships (PPPs). This gung-ho mortgaging of Scotland’s future public finances must be challenged. This edition of SLR illustrates the extent to which these schemes are riddled with problems and shrouded in secrecy. The relative quantity of PPPs in Scotland puts us very much in the front-line.
The problems are not just around excessive long-term costs to the public. They are also quite contrary to all the sloganising around the ‘knowledge economy’ and ‘new thinking’ since we are being tied into a static future with very long-term management and rental contracts for public service provision. Transparency and open government are also off the agenda with these deals since so much is hidden under the excuse of commercial confidentiality as Henry McCubbin illustrates.
The first example we had in Scotland was initiated by Michael Forsyth. The Skye Bridge is now universally regarded as a financial disaster for everyone except the banks. A leaked report (Scotland On Sunday 19/11/00) on one of the most recent projects, the Kilmarnock Prison, suggests that it will cost up to £160m more than claimed – £290m over 25 years rather than £130m – and that it costs the community £26,000 per year to keep a prisoner there, not the £11,000 stated by the Scottish Prison Service. The fact that there can be such different interpretations is, of course, a product of the secrecy around these deals.
Also affecting Scotland we have the proposed PPP for the National Air Traffic Service, placing its management in private hands. As part of its preparations for this, the Government asked the Civil Aviation Authority to come up with proposals for savings on NATS as a ‘sweetener’ for the PPP. They did this in an unpublished briefing document in October which suggested cuts of £165 million from the NATS budget over the next five years. (The Observer 26/11/00) We can also on this issue have some sympathy for Londoners who are faced with the privatisation and fragmentation of their underground despite the overwhelming unpopularity and the option of alternative funding schemes which would keep the service in public control.
These PPPs raise major issues of democratic accountability as well as the efficient use of public resources. Of course, borrowing money in any system always ties us into future commitments but the ties involved with PPPs are far more restrictive and far reaching. Public authorities are legally bound to hand over the construction and operational control of hospitals, schools, etc. and to pay rental for these services for 25-30 years. The social and population changes which we have seen over the past 30 years have been substantial. Given the rate of technological change, they are likely to be even greater over the next 30 years. Anyone who claims to make more than an informed guess as to what our needs for services and buildings will be in that time-scale is lying. We might find with new information technology that we want to organise education in quite different ways and to make radical changes in our use of buildings or land. But we will still be tied into paying large amounts of rental not just for the original building construction but for management fees for the servicing of these buildings that may have seemed appropriate in 1999 but may be totally inappropriate in 2015. It is not just the nature of service delivery which may change. The distribution of population in Scotland is changing and may continue to do so at a faster rate. We simply do not know what will happen. Yet we are being tied into a static future in terms of the financial implications of these schemes at the very time when there is so much fluidity in our thinking about what that future will be. This is truly borrowing from our children.
This form of funding also undermines democracy and open government, both values that the Scottish Parliament was supposed to promote. They are shrouded in secrecy in the guise of commercial confidentiality. In virtually all of these projects not just the public but also many elected representatives are denied full access to all the facts and figures. Surely one of the principles we were all supposed to sign up to was that you could not have effective and accountable public decision-making without transparency?
If we were talking about a few PPP projects throughout Scotland, this would be bad enough. But what is alarming is that the signs coming from this Government, both at Westminster and Edinburgh, is that this is to be the preferred method of financing public capital programmes. Just think ahead to a situation when a large proportion of our schools, hospitals, prisons, transport facilities, administrative offices, recreation facilities – are all tied into expensive long-term management contracts which we cannot change or could only do so with substantial penalties. Elected representatives would have little scope for flexibility and policy change. Public sector employees would be completely fragmented and in weak bargaining positions.
Develop the logic a little further. The private developer builds or takes over the buildings and all of the staff who service the buildings. It is then not such a big step to argue that they should also manage the teachers or the nurses or the clerical workers so that there could be better integration of the work teams.
Why is this happening? It is a strategy imposed from above. Local councillors and officials have been highly critical “off the record” but they have been presented with little choice. The alternative to the Treasury’s insistence on PPPs is a drastic restriction in the capital programmes of public authorities. One does not have to be paranoid to note that in the present round of GATS (General Agreement on Trade in Services) negotiations, influential lobby groups have been working behind the scenes to persuade the US and the EU to allow service-based multi-nationals greater rights to enter the markets of other countries. For example the Coalition of Service Industries is a US-based group who want to be able to target European health and education provision. There is little doubt that this is on someone’s agenda.
The excuse that this is just about getting access to scarce capital does not stand up against the well-known financial arguments against PFI. Maurice Fitzpatrick, head of economics at the city accountants Chantrey Vellacott DFK argues that “for every net £1bn of PFI contracts outstanding this is an extra cost to the public sector of £50m per annum.” Bonds are another option used widely in the U.S. but despite all these options we are being pushed down the route of the least favourable to the long term public interest.
If we were being charitable, we might account for this policy as a short-sighted attempt to get current investment while leaving the next generation to pick up the bills. There is also the old excuse about keeping the Public Sector Borrowing Requirement low in preparation for entry into the Euro. But public sector accounting practices are set to change to a system of ‘resource accounting’ where assets, liabilities and depreciation are all declared. This is long overgue and brings us into line with most other European countries. The outcome of this will remove some of the specious arguments that have been used up until now to justify the PPPs:
“this innovation cuts the ground from under the PFI. Once public investment is fully costed and justified, what need is there for the sleight of hand of the PFI – for which revenue payments are going to have to be made for decades to come?” (The Guardian 20/11/00)
Inherent in this private finance strategy is the assumption that private is good and public bad. This current policy originated under Thatcher to entrench even more deeply the power of private capital. It feels like Thatcherism. It smells like Thatcherism. So what else could it be?