Spending review: New schools 'face axe' to pay for Forth crossing

Published on Thursday 21 October 2010 18:57

PLANS to build dozens of new schools in Scotland could be axed if ministers opt to spend their depleted cash reserves on a second Forth road bridge and the new Southern General hospital in Glasgow, construction groups warned last night.

• A new crossing over the Forth will go ahead

A day after Chancellor George Osborne handed out a 38 per cent cut in the Scottish Government's capital budget, there are now growing fears that Scottish Ministers will be unable to afford billions of pounds of commitments they have made in bricks and mortar.

First Minister Alex Salmond has insisted that big ticket projects such as the Forth crossing must be paid from public funds, on the grounds that privately financed deals have landed the country with huge debts for the future.

But the construction industry and leading business experts say that he has now risks running out of money to pay for anything else, following the UK government's Draconian cutbacks.

The main concerns are focusing on the Schools for the Future programme, a 1.25 billion plan to build 55 new primary and secondary schools across Scotland. Ministers have pledged to spend 800 million on construction work over the coming years.

But with the new bridge and the Southern General Hospital set to eat a 2.5bn hole in ministerial pockets over the coming few years, construction groups say they do not believe the schools will be built.

Spending review: Key strategies

• Scottish public sector pay freeze likely claims top economist

• Students fear loss of support to stay on at school

• Row over winter fuel cash cuts

• Premium- Alf Young: George Osborne must hope his gamble pays off

• Premium- George Kerevan: As it ever was, two wrongs don't make a right

There are also warnings that the cuts will prevent Health Boards from carrying out maintenance and upgrades to the hospitals, and that councils will have to cut back on work on the local road network which they pay for.

Michael Levack, chief executive of Scottish Building Federation, said: "The pressure on local authorities could have an impact on the school building programme. With traditional projects such as the south Glasgow hospital and the Forth Replacement Crossing - if the money is taken out of capital funding there is not going to be an awful lot left there for schools and hospitals."

Mr Levack warned that with such big ticket projects sucking up all available money, Scotland's construction industry was facing freefall.

"In terms of the Forth Crossing, if the Scottish Government continues to think in terms of traditional funding methods - that will kill large parts of our (construction) industry," he said.

He added: "Our member companies and apprentices are telling us that it is carnage out there. Unfortunately we are in for a lot of political posturing while we are shedding jobs day-by-day. Every day I'm looking at the insolvency notices in the paper. There is a dam ready to burst of potential insolvencies - I hope that I am proved wrong - but the evidence is there. The banks are not lending.Many constructors will drown, so it is pretty grim."

Frank Blin, senior partner at PwC in Scotland warned: "The amount (of money) that will be left in the kitty having dealt with the Forth Crossing and the Southern General will be extremely limited."

Mr Blin also warned that Scotland could see a flight of construction firms as they finished work on major projects such as the M74 extension and the Commonwealth Games, and had no work to replace them.

"If they don't see big projects coming on stream then they will look to other market opportunities," he said.

However, Mr Salmond is hoping to create new construction work by backing new "TIF" schemes - tax incremental funding - where funds are secured for major new building work on the future business rate income that will flow from them. The new funding model has already led to agreement for a major new development in Leith and is expected to fund further major construction at Buchanan Galleries in Glasgow and at Ravenscraig in Motherwell.

However, councils say that for school projects, they have little or no choice to either pay for developments from their normal income or by reverting to a Private-Public Partnership, where private funds pay the up front costs and then are paid back with interest over decades.

Ministers have set their face against any new PPP deals.

Councils also fear that capital funding for local road maintenance and for the upkeep of leisure centres, libraries and schools could be threatened.

A spokesman for the Scottish Government last night said that it now needed powers to borrow "as a matter of urgency" in order "to support vital capital investment".

He said: "Westminster has cut next year's Scottish budget by 1.3 billion - including a massive 800 million capital spending cut, or 26 per cent, which goes too far too fast."

He added: "We will publish our budget plans in November, and our spending priorities will focus on economic recovery, protecting frontline services and tackling climate change. We will ensure that our infrastructure programme - including a new Forth crossing - plays a full part in supporting these priorities and use every lever at our disposal to support the continuity of the capital programme."

Work on the Forth Road Bridge is expected to begin in earnest soon, while construction of the new Southern General has already begun.