Labour PFIs create £37.5 billion debt legacy for Scotland

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By a Newsnet reporter

According to figures obtained by the Guardian newspaper, the controversial Private Finance Initiative (PFI) schemes, have left the Scottish Government facing a bill of over £30 billion. 

PFI schemes were first introduced under John Major’s Conservative Government in 1992, and enthusiastically promoted by the last Labour administrations in both Westminster and Holyrood, despite criticising them while in Opposition.  The present UK Government continues to enter into new PFI contracts.

The pitfalls of PFI were graphically illustrated last month, when the South London Healthcare Trust, which runs three hospitals in south-east London, was placed into “special administration” as it found itself struggling to keep up with its PFI payments.  South London Healthcare may be just the tip of the iceberg.  It was reported that as many as one in five hospital trusts in England are facing real financial difficulty meeting their PFI commitments.

As well as Holyrood’s £30.75 billion bill, which includes PFI costs relating to NHS Scotland, Scotland’s share of UK PFI projects relating to non-devolved issues is likely to cost Scots a further £6.75 billion.  That means that the total cost of PFI schemes to the Scottish taxpayer will be over £37.5 billion.  

A single MoD project, the Future Strategic Tanker Aircraft (FSTA), will cost £10.5bn.  Scotland contributes approximately 9.5% of UK Government revenues, meaning that this one project will alone cost the Scottish taxpayer almost £1 bn.   

Critics claimed that PFI schemes were simply a means of hiding debt off the balance sheet.  The schemes were scrapped in one of the first acts of the SNP administration when it entered office after the 2007 Holyrood elections, describing PFI as “costly and flawed”.  

However the Scottish Government must still pay the costs of the contracts entered into by previous administrations.  In 2012, the annual payment by the Scottish Government for PFI contracts will exceed £903 million.  By 2015, the figure will increase to £998 million.  The total annual Scottish budget is £30 billion, which Westminster has already signalled will be cut in future.

Despite the eye-watering sums which will have to be repaid to the private companies involved in the schemes, the repayment figures dwarf the amount of capital invested in projects.  The bill of £30.75 billion in total repayments for projects under the auspices of the Scottish Parliament is due on just £5.69 billion in capital investment.   

PFI schemes have proven to offer shockingly poor value for money, despite the claims of previous Labour administrations that PFI represented the best deal for the taxpayer.  Only this week it was claimed that contracts in PFI built schools in some of Glasgow’s poorer areas was leading to a lack of sporting facilities for local people unable to afford the cost of accessing the once open areas.

The total UK debt due to PFI schemes is over £300 billion, and with an estimated share of £37.5 billion, Scots have a proportionately heavier burden to bear than taxpayers elsewhere in the UK.

Holyrood’s Labour debt legacy of over £30.75 billion is more than 10 times the debt repayments faced by the Welsh Assemby, despite the fact that Scotland has less than twice the population of Wales.  Welsh administrations were less eager to promote the schemes than their equivalents in Scottish Labour and the Liberal Democrats, who formed Scottish administrations during the period when the then Scottish Executive entered into PFI schemes.  

By way of illustration of the vast amount of debt with which Scottish Labour’s PFI schemes have saddled the country, in 2010 Scottish North Sea oil generated £6.5 billion in revenues for the UK Exchequer, according to UK Government statistics.  Scotland’s PFI debts are the equivalent to almost 7 years’ worth of every penny of revenues from North Sea oil, based on 2010 figures.

Speaking to the Guardian newspaper, Dave Prentis, general secretary of the union Unison, said:

“We’re sitting on a PFI debt time bomb, and the sheer scale of the burden paints a seriously grim picture for the future of our public services.”