New Edinburgh Sick Kids among infrastructure projects to have breached EU’s private finance rules

Holyrood has not commissioned any privately-financed major Scottish infrastructure projects since 2016 – when a European ruling deemed its financing structure breached regulations.

Inside the vacant Royal Edinburgh Hospital for Children and Young People. Picture: Scott Louden

The Non-Profit Distributing model (NPD) used to finance ten projects in recent years – including the new Edinburgh Hospital for Children and Young People – was put on hold after the Office of National Statistics (ONS) said the Scottish Government would have to reclassify major infrastructure investments as public projects.

The decision came after Brussels deemed that the Scottish Government’s private financing model breached European Union rules.

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A replacement private investment model, called a Mutual Investment Model (Mim), pioneered by the Welsh Government, is likely to be brought in instead, but has not yet been finalised and no major projects have been financed under NPD since then.

A local scheme, run through five hubs located throughout Scotland, called the Design, Build, Finance and Maintain (DBFM) scheme, which required local stakeholders such as council and health boards to invest in smaller scale local projects alongside private financing, ran until January this year. However, Scotland on Sunday has found that it has also now been axed after running foul of European rules.

The rulings have left Scotland without any major private finance vehicle since 2016.

Scottish Conservative finance spokesman Murdo Fraser said: “Essentially, we are in a hiatus, in terms of major public infrastructure projects. There’s nothing to stop the Scottish Government spending its own money on infrastructure, but it certainly limits the scope for major infrastructure projects without having access to private finance.”

In 2015, the Office of National Statistics (ONS), said that the £1.45bn Aberdeen Western Peripheral Route (AWPR) bypass breached EU rules as it was not truly a private project due to the high level of government control and had to be moved on to public accounts.

In the case of the DBFM scheme, it was agreed that the move would not have to be made in terms of historic projects, but any future investments would have to be classified as such, forcing the Scottish Government to “pull the drawbridge” up on using the model for future investments.

In 2014, before the EU ruling, a further £1 billion of funding through NPD had been earmarked for the 2015-2020 period – in addition to the original £2.8bn NPD funding originally announced.

A report by the Scottish Parliament Information Centre (SPICe) three years ago on John Swinney’s 2016/17 draft budget explained that the “change in treatment means that affected NPD projects impact on the capital budget.”

A spokesman for SFT said: “Changes in European national accounting rules meant that NPD can no longer deliver this additionality and SFT has recommended to Scottish Government that a version of the Welsh Mutual Investment Model could in future be used to deliver additional investment over and above traditional investment sources if required to deliver the National Infrastructure Mission.”

A Scottish Government spokesman said that under revised rules clarified by Eurostat – a directorate-general of the European Union – the NPD model was classified to the public sector in October 2015 due to its profit capping mechanism – so has no longer been used for new starting projects as it can no longer provide additional investment. He said the government had considered a range of alternative models and had approved the Mim in the Medium Term Financial Strategy 2019.

He said: “NPDs are no longer used by the Scottish Government.”