In the market
If it works, it'll be fine and dandy. But will it work?
Ministers are confident but the accompanying documentation still appears a mite tentative.
I'm talking about the Scottish Futures Trust (SFT) which is designed to supplement the Public Private Partnership (PPP) which itself redeveloped the Private Finance Initiative (PFI) and which has now extended into the Non-profit Distributing mechanism (NPD.)
So the acronym market appears to be thriving. How about the market for generating investment in Scotland's schools and hospitals?
Ministers say the Trust will "ramp up its activities over time". Again, notably cautious. But that's perhaps understandable when we're talking about £40bn investment over 10 years.
It'll start this summer, co-ordinating capital projects across Scotland. Broadly, at first, it'll be like a posh quango, advising on sundry schemes in councils, health boards and the like.
But, from 2009, it'll move from the public sector to develop a private finance and investment arm.
Private finance
Again, ministers say it'll work in a range of ways: developing central financial expertise; grouping together capital projects to drive down the cost of borrowing; and encouraging councils to work together to offer joint bonds to the market, attracting private finance.
To be frank once more, today's document relies more upon conceptualisation than detail. Indeed, we are told that "the details of how investment will be raised from the private sector has not been explored in any detail at this stage."
That is listed as an early task for the trust itself.
Sceptics say today's document is "fluff" and a "cheap make-over" for PPP. They're also demanding early parliamentary scrutiny. (John Swinney is appearing before the finance committee next Tuesday.)
Questions? If NPD is already driving down costs by strictly capping profit through removing the equity element of PFI, why do we need a futures trust?
Because, say ministers, it adds the other elements: expertise, bonds and a search for other investment vehicles.
Attractive method
If the SFT was roundly criticised by many who responded to the consultation (and it was), how can we have confidence in it? Because, say ministers, they have listened to the consultation (which also included several positive responses) and acted.
Why would councils act together to offer bonds for a project which they might not control directly? Because, say ministers, this will be an attractive funding method and will benefit the wider community.
Why doesn't the Scottish Government borrow money itself or issue its own bonds? Because it doesn't have that power under the Scotland Act.
In itself, an issue, perhaps, for another day.
I'm 
~RS~q~RS~~RS~z~RS~54~RS~)
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I'm prepared to listen to what is on offer then again I would say that wouldn't I being pro-independence. Could this be the start of a Scottish sovereign fund, or am I mistaken?
Oh how I wish we had independence and the foresight of Norway who's sovereign fund is worth a fair kronor or two these days. Started in 1996 it was worth 328 Billion USD in June 2007 (give or take a billion). What did we get in 1996.........oh yeah Labour........or was that 1997, what is a year in politics between friends.
None the less compared with Labours financial trickery of PFI or the Pay Forever Initiative any move to remedy the long term financial mismanagement of the Scottish public purse by Gordon Brown's clunking financial fist is in my books....a good one.
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Brian
The SFT has to work as the alternative is totally unacceptable in a modern and progressive Scotland.
The articles in the Sunday Herald highlighting just how bad the schemes, PPP/PFI, actually are, and the obscene profits that are being made from them, should alert every tax payer as to why they should be scrapped.
It is no great surprise that SFT was roundly criticized by the people who are making a killing from PPP/PFI, vested interests anyone.
If the Scottish government are prevented from making SFT a working reality by outside interests, including the Westminster government, there can be no stronger argument for independence.
How will the Labour numpties respond? As the repayments are scheduled to be £800ml per year by 2011, will they still say it is great and we should be happy that the Grandchildren of kids attending PPP/PFI schools will still be paying for them.
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The SNP are to be commended for there approach. Their proposals for SFT and LIT proves that there are alternatives to public/private funding and public finance.
The question that Brian Taylor needs to ask is why weren't these alternatives never discussed by successive UK governments and the previous Labour/LibDem Scottish Executive. For under PFI/PPP the taxpayer has ended up paying billions of pounds for projects that have more to do with making large profits than providing essential public services?
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This comment was removed because the moderators found it broke the House Rules.
Unfortunately, Brian your first question indicates an acceptance of at least some of the Govt spin on this confusing and unnecessary proposal.
ie - if it works it will NOT be great, because it will in effect be PFI mark 2. The extra costs of private sector borrowing, the exaggerated 'risk transfer' costs and the profits of the private contractors hired to run our services. will be the same as the much (and rightly) maligned PFI.
It is a great pity (although not a huge surprise) that this increasingly 'business-driven' government has moved away from its commitment to stop PFI.
If the public sector finance raising route is good enough for the largest build project in the country (Glasgow's Southern General) what is wrong with using it for other projects?
Oh, and the other question - will it work? Now that is even less certain!
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"Why doesn't the Scottish Government borrow money itself or issue its own bonds? Because it doesn't have that power under the Scotland Act"
And there is another nail in the Unionist argument, the answer to this Brian is that Scotland needs to become independent to be able to carry out the policies that suit it .
Labour have done there best to privatise the Health Service ,Schools etc with PFI and PPP what the SNP are doing is trying to change years of neglect ,this latest policy from them may not solve things overnight but it is a start and we the Scottish public will at least let them try.
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This is not a party political point. The current world financial problems arose when daft US bankers gave loans to people who couldn't repay them. Greed overpowered prudence. Then dafter European bankers, notably HBoS and RBS, bought the loans for easy profits and traded them on. This is how banking finances itself. When the original US borrowers defaulted, nobody knew what the original debts were for, but they knew they were all skint!
The proposed Scottish Futures Trust sounds like a good idea, but the reality is that it's a repackaged collection of previous schemes with a few additions. All dressed up.
We should heed the US experience, and that of our own greedy bankers: Don't trust complicated financial products dreamed up by wannabee "whiz kids" just out of business school.
Scotland has a great financial tradition, sullied in recent years by obscene greed in the business community.
We would be well-advised to revert to tradition and simply ensure the books are balanced. The rule is: Don't buy what you don't have the money for. Cash is king.
Families in Scotland, as elsewhere, were already mired in out-of-control debt before the present crisis. Collectively, we owe billions.
I don't think we should allow our Government to get the national finances into the same mess as the banks.
I know the Scottish Government means well. But they should accept they made a rod for their own backs with extravagant promises, and not resort to "smoke and mirrors" financing in an attempt to conceal the problems.
I repeat, this is not party political - any other party would be in a similar or worse mess. But it is of extreme national importance, far too critical for point-scoring propaganda.
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Given the quickly eroding capital of the monoline insurers such as MBIA, Ambac and FSA, who is going to guarantee the interest and principal on these bonds? And at what cost will the guarantees be given? 100 basis points? 200? 500?
We are not seriously suggesting that local authorities have the clout to issue in their own name unwrapped in the bond markets are we? Who's going to buy these bonds?
I've been a bond fund manager in Scotland for 15yrs and I wouldn't touch unwrapped Scottish local authority bonds with a barge pole. Illiquid and unlikely to be investment grade, they will be the financial equivalent of toxic waste. The yields on offer to get these deals done will be functionally equivalent to the return on capital demanded by the private sector for an equity slice of PFI deals - so why bother? For example, even HBoS is borrowing at 4% OVER government bonds at the moment and there is no way that local authorities without explicit government guarantees will borrow inside that.
Has no-one been paying attention to the problems in the US municipal bond market because of the monoline issues?
The real issue here is the debate on the correct level of public spending.
Lets have ALL public spending, whether to fund current expenditure or investment, ON BALANCE SHEET.
If that means that spending has to be curtailed in order to keep debt at politically/socially acceptable levels then so be it.
Otherwise we are merely passing on hidden debt to future generations, and playing a con trick on debt/gdp in the mean time.
We have binged on cheap public and personal debt for too long.
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Brian,
Many thanks to Chrisbowie at #8 for giving a financier's view of the plans for a Scottish Futures Trust. This is the level of comment we need on this blog.
The financial implications aside, he makes the point others seem to miss, let's debate the current level of public spending, not just in Scotland, but the UK.
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Brian,I had a quick skim over the SFT proposals online via the government website and recognised 1 in 3 words and understood about 1 in 6.Not knowing terribly much about the nuances of public and private sector funding systems,it all sounded all well and good to me as Joe Public, but I can see Gordon,Des,David and the other lads down south going purple at the very thought of different methods of public expenditure investment to their own tried and trusted.They'll either block the proposals at the first fence or steal them for their own devious political ends.
On your point about councils sharing bond risk,and your scepticism as to why they would find it either helpful or useful,I can think of several European examples of bus+tram services being funded and offered over a regional area covering several town and district council areas with each sharing the risk,responsibility and what surpluses ensue.
Anyway,compared with PFI/PPP,it can't do any harm to explore alternatives.
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As the price of Scottish oil is increasing, and Westminster is raking in extra profits from our oil, then Scotland needs to get a much bigger financial settlement from Westminster, that's if they want to delay the demise of the union.
Instead, what do they do - they hold back millions that are due to Scotland.
Independence is the only answer. This will allow Scotland to make the most of its own natural resources, rather than throwing Scotlands money away on Londons pet projects and Westminsters wars with other countries.
Westminster, you had better stump up now, or say bye bye to Scotlands oil wealth.
Westminster, your opportunities to take Scotlands oil wealth are running out. You had better diversify your industries so you are no longer dependent on money you are not entitled to take.
Any money that Scotland did get over the 8 years of Labour rule was thrown away on massively expensive PFI schemes devised to make excessive profits for private companies and their Labour friends. Bring on more efficient schemes that have been proven in other countries. Bring it on.
Pity there wasn't the same scrutiny for PFI, PPP. Let's have a review of all those schemes so we can get the detail of Labour crimes against Scotland.
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Brian
Given the limits under the Scotland Act, this is probably the best that the Scottish Govt could do. They are to be commended for trying to provide an open and honest method for funding capital projects.
Gordon Brown has been found out on the PPP/PFI con he took from the Tories. The EU now will require this borrowing to be put on the balance sheet. I would rather try the SFT that continue to put the country in hock for decades just to make todays figures look good.
Once again the SNP Govt is showing up the previous Executive with an imaginative and ambitious scheme. Just think what they could do with FULL financial powers. I think the electorate are now starting to see the potential of independence.
Roll on 2010
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For once in my life I agree with Brigadierjohn!
Chrisbowie also speaks the truth.
This whole idea of funding large capital projects by borrowing from future generations is a bad one. A very bad one. Trouble is, now that Labour have instigated it, it's very hard politically to undo. It will be quite hard to sell 'If you can't afford it, you can't get it' to Joe public and so the SNP have chosen the path of continuing with the policy but attempting to limit the damage. They are between a rock and a hard place on this one I think.
We should all try to live within our means, both individually and as a nation.
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Headlines on the BBC you will never see:
SFT makes more sense and has better controls than PFI/PPP
or how about;
Conservatives applaud SNP Police Initiative (as instead of a projected shortfall of hundreds under Labour it is only 45)
then there is;
Independent research shows Scotland has a tax surplus of £4.4 billion
the fantasy headlines we will never see could be:
Wendy admits she is incompetent and resigns.
or;
Labour in Scotland splits from Millbank and Brown
what about;
Strathclyde Police arrest Wendy over Electoral Donation discrepancies
See Brian; you, Doug Fraser and Gordon Brewer's Unionist agenda has been sussed. Your are all as impartial as a die hard Dundee United supporter commentating on Dundee FC.
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The points made by chrisbowie, william1957 and others in that vein are good and sensible.
I would add that along with keeping spending within our means, government of all flavours (UK, Scottish and local) really need to get their act together regarding getting decent contracts in place to ensure we get value for money.
How many times do we hear of tales of woe about projects going way, way, way over budget - the Scottish Parliament building, new Nimrod aircraft, Health Service IT projects, and so on.
A lot of the overspend is down to bad contracts that permit the service suppliers to take the government to the cleaners. Another big factor is that once a project is started, the sponsoring authority keeps dithering and changing the specification (perhaps because they have not specified the work properly in the first place ... idiotic stuff) so any initial contract is under perpetual renegotiation to account for a moving target.
So I am firmly of the view that we should spend within our means, not set up debt for the future generations to deal with, and insist that government authorities spend in a responsible and professional manner.
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Brian,
I am not sure where Scot2010 is coming from. My reading of the SFT is that the plan is to use bonds to finance present and future spending. The Scottish Executive cannot issue bonds, and chrisbowie, above, writes about the likely liquidity of municipal bonds.
It does not matter whether it is PFI or SFT this means transfer of wealth from the future (where it has to be earned first) into the present (where it is spent now).
There are other questions:
Who would buy bonds issued by local authorities?
I would not.
What would be the premium (interest paid) to make these attractive to investors?
I guess probably one or two points above base rate, at least. See chrisbowie's point on the difference between this and the return on PFI gained by he private sector.
Who pays?
The future taxpayer, of course, whether it is through Council Tax or Local Income tax it will not matter a hoot. They will have to pay the interest during the lifetime of the bond, and the capital when the bonds mature. Unless of course the issue more bonds, which would only postpone the day of reckoning
Who guarantees the bonds in the case of a default? it would have to be the Scottish Executive, I doubt whether the Treasury will. More taxpayers money gone, or less in the total pot for everyone.
As for it being an imaginative and ambitious scheme. It suffers from the same kind of ideological shortsightedness that those who proposed PPP and PFI had.
Let's cost it properly. I understand Salmond and Swinney were coy on the detailed figures when they announced the initiative.
In addition, let's have a serious debate about the level of taxpayer funded local and national government expenditure.
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Brian:
a great blog topic....
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From the Sunday Herald:
'Cowboys who rob the sick and dying but never see a jail
Tom Shields on buildings and food
THERE IS an apocryphal tale of a council building contract in the olden days when corruption was allegedly rife. An Aberdeen firm bid £9000, which consisted of £3000 for materials, £3000 for labour and £3000 profit. A Glasgow company bid £18,000 with costs of £6000 in each category.
But the contract was won by a local Dundee firm that bid £27,000. The breakdown was £9000 to be split between certain councillors, £9000 for the Dundee company and £9000 for the Aberdeen boys to do the work.
These days, you don't get that kind of petty profiteering from the public purse. As last week's report from the Office of Fair Trading (OFT) reveals, our construction companies play for much higher stakes. The OFT alleges that no fewer than 112 building firms have been involved in rigging bids and tenders that generated an extra profit to them of some £300 million.
These contracts were for such projects as schools, hospitals and hospices. The cowboy construction companies were not just allegedly robbing you and me, but also the sick and the dying.
The OFT says that 5% of the cases investigated involved cash pay-offs to rival firms who had deliberately over-priced their bid to avoid winning the contract. The Construction Federation has responded by pointing out that such practices are not illegal. Indeed, the OFT plans to impose fines on the companies involved. But they have not passed on any of their information to the police.
So none of the captains of the construction industry who stole £300m of our money will be going to jail. Imprisonment for stealing public money these days is, of course, reserved for single mothers who cheat on benefits to buy shoes for the weans.
You would have thought our politicians might be up in arms on this issue. But this may not happen while so many elected members are busy padding their own expenses and while political parties are accepting large donations from construction companies.'
Many of our Councils in Scotland and indeed our Councillors have been caught with their hand in the money jar in the past.
The public in Scotland (never mind the rest of the UK) does not have the confidence in the Labour Party nor the United Kingdom government any more. This comes from the fact they had the opportunity to be more upfront with information given to the public but have fought tooth and nail to have it hidden.
Here in Dundee the public voted for the SNP in Dundee East (again) and for the first time in Dundee West. We are now run by a set of LibLabCon artists (sorry councillors).
Being serious I'd hate to think what the SNP would have found had they went through the books of Dundee City Council.
Illegal Bonds through promises of riches are already in existence and have been traded illegally via tapping for years. No wonder Joe Public no longer has any confidence in the political system.
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Brian:
I hope that it works; whatever decision was made, is going to work...
~Dennis Junior~
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