Scots facing a 'council tax time bomb' to pay PFI bills

Published on Wednesday 9 March 2011 18:32

HOMEOWNERS are facing a council tax time bomb as a result of the high cost of PFI projects, a new report has claimed.

The paper, published by the Fraser of Allander Institute at Strathclyde University, says that Scotland's 32 councils are facing "severe" pressure to make "steep" council tax rises as they pay back the cost of the deals.

Authors Jim and Margaret Cuthbert say several councils "cut corners" in assessing the cost of the programmes, which paid for 275 schools across the country to be built or refurbished.

The new schools have proven hugely popular with parents and pupils, having replaced Scotland's many dilapidated buildings. However, the paper by the Cuthberts suggest that the bill will fall on taxpayers over the next few years.

Their paper reveals that six councils planned originally to use council tax rises to pay for their PFI deals, increases which have so far been put off by the council tax freeze. However, the Cuthberts say the freeze cannot continue for long.

At the same time, it warns that the costs of paying back the PFI loans is rising, with a sum of 430 million due in 2011-12 alone - equivalent to the cost of the Scottish Parliament building.

Such payments need not be a cause for concern, but the paper says that too many local authorities failed to factor in a rise in inflation, and also made "overly optimistic" assessments.

The paper warns: "Many local authorities are likely to experience difficulty in meeting their contractual obligations under PFI contracts. The consequences in terms of cutbacks on other services, increases in fees and charges and/or increases in council tax, are likely to be severe."

With the Scottish Government unlikely to boost funding due to cutbacks in spending "this means that many authorities will experience considerable difficulty in making their PFI contractual commitments".

It concludes: "The consequences, both in terms of an increasing squeeze on other local authority services, and in terms of pressure for steep council tax increases, are likely to be severe."

The paper says that five councils - Clackmananshire, Highland, Scottish Borders, Angus, Perth and Falkirk - planned specific council tax increases to pay for the cost of PFI when they made their business cases.

In the case of Clackmananshire, the increase was scheduled to be an annual year-on-year increase of one per cent between 2006 and 2018.It said last night that it had since "reviewed" its funding model, in light of the freeze on council tax.

The paper warns that Scotland is particularly exposed to rising PFI costs because of Scottish local authorities signed up to far more deals than their counterparts south of the Border, with Scotland having 40 per cent of the UK's PFI school projects.

Labour's local government spokesman, Michael McMahon, defended the PFI deals last night saying they had ensured that thousands of children were no longer being taught in "crumbling buildings".

He said: "World-class schools help provide the best education and it is deeply disappointing that progress has stalled under the SNP. I accept councils across Scotland are now facing financial pressures but this is largely because the SNP have pushed through a council tax freeze without properly funding it."

However, a spokesman for the Scottish Government said that PFI "does not deliver value for the public purse", and added that the Scottish Futures Trust would now seek to "examine ways of reducing PFI payments resulting from old contracts".

The government's funding package for councils was "far superior to that in England," the spokesman added.

Derek Brownlee, finance spokesman for the Scottish Conservatives, said: "PFI should only be used where it is the best option for taxpayers."