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Revealed: The ‘colossal’ £8.5bn bill for £2.9bn of Scots infrastructure projects



But concerns are being raised over the “colossal” cost to the taxpayer of the latest private funding schemes to improve Scotland’s infrastructure through over 50 schemes with some £1bn already paid out and a further £7.5bn more still to be forked out in the next 26 years, according to details seen by the Herald on Sunday.

It comes as councils across Scotland look to make cuts to combat a £1bn black hole in public finances to provide services such as education, care, waste management, cultural services and planning.

The private funding payments mostly cover the cost of financing including the interest plus the maintaining of buildings until they are paid for in 2048 when they are then handed over.

The unitary charge payments have been rising since 2014/15 when just £3.3m was paid until £2020/21 when £292.1m was handed over. The annual payments are expected to rise to a peak of £336.8m in 2038/39.

Three out of the five hub companies formed to help build Scotland’s infrastructure and take receipt of the charges are at least part-owned by firms based in the offshore tax haven of Guernsey.

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Two years ago the Tax Justice Network’s ranking of corporate tax havens scored Jersey and Guernsey 98 out of a possible 100, putting them “up there with the worst”.

Dr Dexter Whitfield of the European Services Strategy Unit finance think tank in a new analysis found that a further four of ten project companies that have also provided finance are part owned by companies in tax havens such as Guernsey, Luxembourg and the Cayman Islands.

The finance deals have paid for a swathe of major projects across Scotland including the priciest and one of Scotland’s biggest road schemes, the Aberdeen Western Peripheral Route (AWPR) and the M8, M73 and M74 motorway improvements both commissioned by Transport Scotland.

The £1.2bn cost of the AWPR scheme is up to four times its original 2005 budget and when the bypass opened in February 2019 – it arrived eight years later than originally planned.

Other schemes paid for in the deals include the redevelopment of the Royal Edinburgh Hospital campus, the building of new City of Glasgow College campuses as well of a host of other school, hospital and health centre redevelopments.

The Herald: City of Glasgow College

The most recent completed scheme creation of health and care centres in Greenock, Stobhill and Clydebank. Work on the £21.7m Clydebank Health and Care Centre was completed in January, last year.

Those commissioning the projects through the controversial schemes incouding a host of NHS trusts, councils and Scottish Government agencies. They include Scotland biggest NHS trust NHS Greater Glasgow and Clyde, NHS National Services Scotland and Glasgow City Council and the City of Edinburgh Council.

Scotland Against Public Private Partnerships (SAPP) a task force made up of the respected think tank Common Weal and the anti-debt coalition of groups, Jubilee Scotland in conjunction with a range of experts are demanding the public finance partnerships be brought to an end.

Amanda Burgauer, executive director of Common Weal said the payback on the schemes was “outrageous”.

“It is like having sky high payday loan rates but for our infrastructure. It is just not right and it is not value for money when the billions can be used for other projects that are needed.

The First Minister kicked off work on the Aberdeen bypass

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“If anyone had told you when private finance initiatives was being set up that it would result in a one-for-the-price-of-five hospital, you’d have laughed it out of the room.

“Now even when Westminster has given up on this daft system, Scotland is still using a type of financing that wastes public money. Everyone but everyone knows we shouldn’t be building schools and hospitals in this way but still Scotland does. What on earth is it going to take for some sanity to win out here?”

The best known, and most widely used, model for PPP projects is the Private Finance Initiative (PFI) first introduced by the UK Government in 1990.

Fifteen years later the Scottish Government replaced PFI with the NPD model, in which the Scottish Government set up initially five hub companies between 2010 and 2012 to deliver community infrastructure projects overseen by the public infrastructure quango, the Scottish Futures Trust.

All the contracts are linked to project companies referred to as Special Purposes Vehicles (SPV) to provide the money for delivery while the annual payments in the main allow the companies to repay their lenders.

The Scottish Government has been moving away from the hub and NPD schemes to new way of private financing new projects called the Mutual Investment Model (MIM) which contains many of the features of NPD and PFI.

And SAPP has said that there that private-public finance schemes should now be abolished and that alternatives for paying for infrastructure schemes should be sought.

It said: “PPPs are poor value for money: projects are highly lucrative for the private sector, hidden debt is accumulated for local councils and limited public finances are misused.

“Enlisting private finance to build and maintain Scotland’s public infrastructure is a costly affair.

“In addition to the high interest costs, PPP projects also burden local councils with high fees for accountancy, legal advice and consultancy.

“We worry that private bodies, who stand to gain extraordinary profits from the continuation of the use of PPP, are influencing discussions about the model and hindering an active pursuit of alternatives.”

Concerns have been raised that ministers are not monitoring whether PPP firms are selling on their debts, making it hard to establish how effective its policy of profit capping has been in limiting overall private sector returns.

And there are concerns that stakes in building project firms can be bought and sold, meaning their ownership can always change.

The Herald:

Dr Whitfield raised concerns that the complex corporate web of the finance deals show that tax havens are being used despite continued criticism of their role because they maximize profits by minimising taxation and provide a high level of secrecy of financial and business matters.

He said that the companies in tax havens are likely to raise capital from financial institutions and to negotiate supply or labour contracts with other companies operating in the same or similar tax havens.

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He raised concerns that the data of private finance company investors provided by the Scottish Futures Trust fails to report the scale of the use of tax havens both at the time of contract signature and in subsequent years.

“The complexity of multiple companies and investment vehicles combined with the use of tax havens and private investment for public infrastructure inevitably leads to multiple layers of ownership, disclosure and additional costs in corporate structures and annual audit costs. It also provides multiple activities from which profits can be gained,” he said.

“The secrecy of tax havens imposes constraints particularly with regard to financial issues but also in regard to company compliance with international, national and local regulations such as operational practices, health and safety and employment regulations.

“The SFT and Scottish Government must actively ensure that the use of tax havens in Scottish public infrastructure projects should be banned in future proposals.”

A Scottish Government spokesperson said: “PFI was replaced with a new approach helping secure investment and value by sharing profits between the public and private sector.

“The Scottish Government’s borrowing powers are restricted by the current limits on the powers of the Scottish Parliament.”

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