Scottish Futures Trust cannot work just yet

THE Scottish National Party (SNP) has long been an opponent of using private finance initiatives (PFI) and public private partnerships (PPP) to fund public projects.

In its election manifesto, the party set out its commitment to put money into frontline services rather than pay "the inflated cost of Labour's PFI projects".

Statistics recently released from the Scottish Executive have revealed that the legacy debt inherited from those PFI/PPP projects that are now up and running, or to which commitments have been made, is around 4,500 for every tax payer in Scotland. This is a debt that is likely to remain, as extracting a public body from a PFI/PPP contract can be as costly as allowing it to continue for the 25 or 30-year concession period originally envisaged.

So while there is little the SNP or any future administration can do about the debt already created by the use of PFI/PPP, the SNP is committed to not increasing that debt and to channelling savings into reducing hospital waiting times, recruiting teachers and healthcare staff. Just 100 days into its administration, the SNP declared that a proposed PFI/PPP scheme for a new prison to replace Low Moss, at Bishopbriggs, was to be scrapped and the prison would be procured and run by the public sector.

As part of its election manifesto, the SNP set out its proposal for the Scottish Futures Trust as an alternative to PPP/PFI. This encourages greater use of public bond issues, thus giving access to lower-cost borrowing with public assets being held in trust for the Scottish people.

This "not-for-profit" vehicle is aimed at reducing the high levels of public debt associated with PFI/PPP. It is not the involvement of the private sector per se that the Scottish Futures Trust is seeking to remove - rather the traditionally high costs associated with PFI/PPP procurement.

Unfortunately, the SNP has not provided any further details of how it intends to implement the proposed trusts. In a paper, the party refers to similar trusts that are set up in the United States, where investors can invest in public infrastructure project bonds. In the US, such bonds are exempt from income tax, thus increasing the attraction for investors.

At present, there is no legislative framework in the UK that would allow a similar exemption. Fiscal changes are not devolved to the Scottish Parliament under the Scotland Act 1998.

If the SNP is proposing a similar regime for the Scottish Futures Trust investors in order to attract investment, then this will raise some thorny devolution issues.

The SNP's manifesto made it clear that adoption of the Scottish Futures Trust model will not be mandatory and that public bodies can still chose the PFI/PPP route.

However, it is clear from statements made and actions taken since coming to power that the SNP intends that Scotland will move away from the traditional PFI/PPP model for public procurement, at least insofar as that model relies on private-sector funding.

Of course, this idea of public institutions being in trust for the Scottish people and therefore retained within the ownership of the Scottish people is a nationalist dream.

The reality of a publicly funded and owned project is that the public then have to maintain and service the asset. Traditionally this has not been something that the public services have been very good at, and indeed was one of the main thrusts behind the introduction of PFI/PPP.

If the SNP's Scottish Futures Trusts is to be a viable alternative vehicle for the delivery of public assets it will have to encapsulate incentives for investors that still provide the public sector with good value for money, while not excluding the involvement of the private sector from the process in order to take advantage of their experience and expertise in the delivery of large assets.

There is no doubt that the cost of PFI/PPP projects is and will be a burden on taxpayers, however what the Scottish taxpayer now has are state-of-the-art and fit-for-purpose schools, hospitals, prisons and waste and clean water treatment plants. The way forward may be a happy medium between public and private ownership, a model which has been successfully used.

• Juliet Haldane is a partner at law firm Shepherd+ Wedderburn, specialising in construction and special projects.