PFI is dead - long live PFI!

Scottish Ministers are fond of saying that Scotland is being "set free from the shackles of PFI". Sadly this misrepresents the continuing widespread use of private finance in public infrastructure through a range of PPP models. It's an old trick of political spin to change a name or two, but it's substance that matters.


Despite vociferous criticism of the previous administration's use of PPP/PFI, the Scottish Government is planning one of the largest PPP programmes in Europe. Ministers avoid using the acronym PPP, although officials when pressed do own up.


Instead they refer to NPD (Non-Profit Distributing Trusts). The NPD model is simply a cosmetic change to existing PFI schemes. It retains the higher borrowing costs, private profit at the contractor level and elements of the risk transfer costs all leading to the same profiteering and inflexibility inherent in PFI.


The other rebranding is called the Hub initiative, which uses Design Build Finance and Maintain (DBFM) PPP contracts for „community facilities e.g. health centres, schools, police & fire services. The Hub initiative is based on the English Local Improvement Finance Trust (LIFT) health PFI scheme. Also, waste infrastructure contracts are based on English PFI ones and the National Housing Trust is a form of PPP.

So why are we returning to PPP via this elaborate political spin? To be fair these PPP schemes are better than their predecessors, but that would be true of every private finance scheme as the procurement staff learn lessons, at the taxpayers expense. The real reason is a complex mix of off-balance sheet financing and the relentless chase for the free lunch. Enron economics are alive and well in Scotland.

What's the alternative?

• PPP/PFI contract buyouts that produce savings. A 2011 SFT review didn't calculate potential savings because, it said, "termination would bring assets back into the public sector for accounting purposes and the capital budget required for this is not currently affordable". In other words Enron economics.
• Prudential borrowing for health boards to plug the biggest gap in the conventional borrowing regime.
• Provide a genuine level playing field, with Scottish Government funding support offered to new projects irrespective of the proposed method of procurement.
• Extend Freedom of Information laws to all companies and other bodies providing public services. The capacity to effectively scrutinise the true costs of PPP is essential.

The bottom line is that every objective analysis and countless parliamentary reports all show that private finance is less flexible and more expensive than conventional borrowing. But weaning politicians off it is proving very difficult indeed.