Comment: Always waiting for payback time
WITH an invitation from Sir Angus Grossart, chairman of Scottish Futures Trust comes an element of risk.
A couple of years ago a Freedom of Information request by a fearless fellow journalist into SFT expenses exposed a bill for some £60 to cover lunch with an unnamed recipient at Libricci’s in Frederick Street – darkly described as a “Sicilian restaurant”. What shadowy recipient might this have been? I checked back on my diary. It was me.
On Friday I met again with Sir Angus over lunch to discuss the latest news of £131 million savings wrung by SFT out of Scottish Government public infrastructure projects. He was rather rude about my new bamboo jacket.
He is hosting a big party at the National Museum to chime this week with the Catherine the Great Exhibition. Guests are being encouraged to attend as famous Russian characters. I thought Sir Angus might attend dressed as Lavrenti Beria. Some of the guests might choose to appear as Boris Yeltsin, so at least they could turn up legless without the need for excuses.
Regrettably my heavy duties at the Lochearnhead Highland Games on the day – plugging in the electricity cable from my house to the beer tent – prohibit my attendance. But to choose a character reflective of Sir Angus’s astonishing survivability in finance and politics over the decades, he could surely attend dressed as the wily survivor Anastas Mikoyan, he of the everlasting Astrakhan fur coat.
Mikoyan was a great survivor. He endured the Stalin Terror, the war-time purges, the bullying midnight feasts at the Kremlin and progressed from trade minister to the country’s most eminent globe-trotting diplomat, prominent on the Lenin Mausoleum balcony through the Khrushchev era and finally retiring in 1965 after more than 40 years in the senior echelons of the turbulent Soviet Union. Nothing seemed to dislodge him. After so long at the centre stage of Scottish finance, Sir Angus might similarly look forward to a 14 year Mikoyan retirement with the minimum of daggers in his back and no banishment to a Caledonian Siberia. Or not yet.
In spite of this, or because of it, he and SFT’s chief executive, Barry White, deftly deflected my two key questions over lunch. Last week Alex Neil, the cabinet secretary for infrastructure and capital investment, proudly proclaimed that SFT had saved the Scottish public sector £131m during 2011-12. The Trust’s annual benefit statement, independently verified by the London School of Economics and accountants Grant Thornton, revealed that it had met its financial target to “release savings” of between £100m and £150m a year for the third year in a row.
Were the savings real, I asked, or conceptual – the product of paper accounting? Very real, I was assured. For example, getting two separate local authorities to adopt shared school design had produced some £4m of benefits. Overall, the Trust claims to have built 67 schools rather than the 55 budgeted for.
And SFT’s work with the National Housing Trust on developing an affordable housing model, he claimed, had catalysed £100m of investment that would not have happened without the Trust’s intervention. Alternative historical approaches would have been more costly.
So if the savings – independently verified – are real enough, what is then done with them? Neil’s phrase that the Trust is able to “release savings” doesn’t quite capture it in my view. Barely had he trumpeted this achievement than his statement went on to announce the savings would be ploughed back to deliver “more houses and schools, more health and community projects”.
But what is the logic of ploughing the savings achieved by SFT back into the same clearly inefficient public sector maw from which they were wrung? Surely, I asked, it was time for a taxpayer cash-back?
After all, the money comes – as all “government” money comes – from the taxpayer. How appropriate, therefore, that the savings made from projects where money was inefficiently or inappropriately allocated should be returned to the source from whence it came?
There is also a respectable argument in economics that the savings returned as a cash-back to the taxpayer would be more effectively spent in those areas where we taxpayers wished the money to go, rather than where politicians deemed it would be better spent. This would also have the advantage of providing a quicker stimulus to the economy through extra consumer spending.
Sir Angus’s neat sidestep was this. There is, in effect, a taxpayer cash-back. The savings enable more schools to be built and for public money to be stretched further across infrastructure projects. However, that still leaves some awkward questions. If SFT continues to yield up savings of this magnitude, what does this suggest about the public sector funding model and its procurement process? And who decides where and on what criteria the savings are re-allocated?
It would arguably be more of a taxpayer cash-back if the savings were reallocated separately from the original funding process – that either SFT or another independent body appraises and decides where the savings should go.
These are important questions for the future. In the meantime we have cause to welcome more than we do the work of SFT – a uniquely Scottish solution and one which Westminster could usefully follow as its own Infrastructure UK body is bound up with the Treasury and does not enjoy the operational independence that SFT enjoys.
And while the savings cannot make good the major reduction in capital spending with which the Scottish Government has to contend, the cumulative savings of between £300m and £450m over three years do help to mitigate the cutbacks.
Last week brought outstanding updated research from economist John McLaren and his team at the Centre for Public Policy for Regions on Scottish budget cuts. The total budget is expected to fall by 18 per cent, equivalent to £5.5 billion between 2009-10 and 2016-17. The capital budget takes the biggest percentage hit with a cut of almost £2bn.
I neither dispute the figures nor seek to diminish the tough choices that have to be made. But in this context accumulated savings in excess of £300m over three years are not to be sneezed at.
And the context of the figures must be borne in mind. It could never be the case that the five per cent real terms increase in Scottish government spending between 1999-2000 and 2009-10 could be sustained for ever. The business cycle has not been abolished for the government’s benefit.
Moreover, taking the long view, total public spending in Scotland will still be showing an average real terms rise of 1.5 per cent a year over the 17 year period to 2016-17 with spending on health and education protected. Given the scale of the financial crisis and the downturn being endured, this is not an Armageddon result. And it reflects the reality of an economy that is under intensifying pressure from Asia Pacific and with a relentless rise in demographic pressures.
We have to think more about the productive potential of the economy rather than just grieving over the squeeze on government spending. I’d like to think that towards the end of his long life, the wily Anastas Mikoyan got the point. Will we?
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Wednesday 19 June 2013
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