Warning SNP's finance plan may be illegal

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FRESH doubts were raised yesterday over the Scottish Government's plans to finance the building of schools, roads and hospitals.

The Scotsman has learned that officials at the Scotland Office are reviewing the SNP's proposals for a Scottish Futures Trust (SFT) "with a fine-tooth comb".

Civil servants have particular concerns over the legality of plans for a municipal bond to raise finance guaranteed by the collective assets and revenue streams of Scottish councils.

The details of the SFT were announced on Tuesday by Alex Salmond, the First Minister, and John Swinney, the finance secretary.

The SFT was meant to be a cheaper alternative to the public private partnerships (PPPs) which have been used to raise private finance for new infrastructure projects in Scotland.

The SNP has claimed that PPPs would cost the Scottish economy 800 million a year in repayments, and said they allowed the private sector to profit at the expense of the public purse.

However, the Nationalists' SFT plan was almost immediately branded PPP-lite by critics for taking on a not-for-profit distribution form of PPP. And it was suggested that the plan may not be attractive enough for private investors.

There were also claims that the strategy was full of holes, particularly as it did not specify how private finance would be raised, and there were fears that projects such as the new Forth road bridge could be delayed.

The one area of finance which was touted was a municipal bond.

A Whitehall source said: "We don't understand what (the SNP] hope to achieve with this bond. It would probably need permission from the Treasury and it could not go beyond council borrowing limits, unlike PPP.

"Added to that, it is almost certainly illegal that money raised from a bond with one council could pay for a project in another area."

However, a Scottish Government spokesman said the bond issue had been checked and would be legal. He added: "We are talking about Scottish councils getting together in clusters to issue more attractive bonds to fund projects in all their areas."

Meanwhile, Mr Salmond was accused of hypocrisy by Labour opponents last night for attending the opening of a PPP school in North Ayrshire – St Matthew's Academy in Saltcoats, which is subject to a 112 million, 30-year building-and-maintenance deal.

However, a spokesman for the First Minister said that he would "use the opportunity to tell people about the benefits of his new scheme".