Public Infrastructure Investment
We move to consider the second debate of the morning, motion S1M-3228, in the name of Alasdair Morgan, on investment in public infrastructure, and two amendments. Members who wish to participate should indicate that now. It is helpful to whoever is in the chair for deciding on times.
I welcome the ministers to the debate. It is interesting to note that finance is more important and more complex than transport, as it justifies the presence of two ministers rather than one.
There are three ministers present.
I referred to the ministers who are taking part in the debate, although I am willing to be surprised.
No one doubts the appalling state of Scotland's infrastructure, a legacy of years of Tory rule from Westminster and Labour dominance in Scotland. Such are the allegedly enormous benefits of the union that placed Scotland in the United Kingdom—benefits that the Tory party still tries to extol—that, as we enter the 21st century, Scotland has a crumbling infrastructure in all its most important elements.
Our school buildings have an enormous backlog of maintenance and, in many cases, they are a disincentive to education. Many hospitals are fit only for the medicine of a previous era. Our transport system, both by road and by rail, is a definite hindrance to the economic development of our country and a constant source of complaint from business. The list continues through every sector in which the public has a right to expect public investment.
The report to which my motion refers, prepared by Audit Scotland for the Accounts Commission, deals with the use of private finance initiatives in Scotland's schools, an area where the backlog of infrastructure investment was such that, just over a year ago, we had an estimated bill for urgent repairs of £2 billion. The report "Taking the initiative—Using PFI contracts to renew council schools" concentrates on six PFI contracts designed to replace old and unsuitable school buildings with new build.
The Scottish National Party shares the desire for new schools to replace the crumbling infrastructure: the leaky roofs, the cold, draughty classrooms in winter and the overheated greenhouses in summer. We accept that new schools give a better learning environment for pupils and a better working environment for teachers. Overall, they contribute greatly to a better educational experience.
To state that is to state the obvious, yet it must be said because, too often, the proponents of PFI seem to advance the notion that the simple existence of new schools is by definition a justification of a PFI. They glow with pride when they hear a headmaster or a pupil tell them how grateful they are to have moved from their old building to the bright, shiny, new replacement.
That is not the issue. The issue is whether the method used to provide the new building was the best possible one available under the circumstances, whether the cost of providing that building was the most judicious use of public finance and whether other methods could have procured the same results in infrastructure improvement, but at a lower cost to the public purse.
There are parts of the report where there is some common ground between the SNP and the Executive. The report says that the use of PFI to provide new schools has delivered real benefits in terms of project management, risk transfer and financial control. We in the SNP accept that, in some cases, the implementation of PFI, the intense effort that is required to draw up contracts and the disciplines that are imposed by the contractual relationships between the various parties may well have concentrated the minds of the purchasers on precisely what it was that they wanted in their contracts.
In many cases, it may well have been that the activities of professional project managers were superior to those of the people potentially available from within the public sector, especially in cases where the management of projects of the size of some recent PFI contracts was an activity with which they were not familiar and in which they could not have been so skilled. However, it is a far cry from those occasional improvements to the tendency among some of the proponents of PFI to act as if there was no such thing as a public sector project that came in on time or on budget, and as if all such projects were doomed, if not to failure then to being disastrous in terms of time or cost control.
Many members are connected with local authorities and will, quite correctly, argue that that is not the case. Moreover, many of us know that, on the contrary, the involvement of the private sector is no guarantee that projects will run on time or on budget, even when they are within the control of the private sector. Indeed, the Audit Scotland report recognises the danger of relying on an image of public procurement when that may not be true. It says:
"The danger is that decisions in favour of PFI procurement may be driven by stereotypes of poorly performing alternatives rather than good evidence of demonstrable benefit."
Although the report said that PFI had delivered real benefits, it added that there were also disbenefits and that
"The benefits available from PFI are not necessarily unique to PFI. Other forms of procurement could potentially secure many of the benefits identified".
We do not believe that the benefits outweigh the huge costs and disbenefits associated with PFI.
If that is what the SNP believes, why does the SNP group on Dumfries and Galloway Council not resign from that council's administration rather than pressing ahead with a PFI for schools?
There are two points on that. First, the member will note that the SNP put forward, and had accepted, an amendment whereby Dumfries and Galloway Council would consider other options, including a trust. Secondly, if the Executive insists that the money is available only under the condition of going down a PFI route, then SNP—and Conservative—councillors anywhere in the country have little choice in the matter.
What are the extra costs associated with PFI projects? I hope that members' eyes do not glaze over when I talk about the public service comparator, or PSC. It is a device that is used to compare the costs quoted by the actual PFI tenderer against the likely costs of a non-existent public service option for the construction or project in question. On its analysis of the six existing contracts, Audit Scotland stated:
"the main elements of costs underlying the PFI option are higher than the equivalent forecast costs under the PSC. Thus in five cases out of six the PFI construction costs were higher than the PSC, and in all six cases the operating costs of the PFI option were higher than the PSC."
Even using the comparator, the public service option came out cheaper nearly all the time. Why on earth did the PFI option still win every time?
Audit Scotland's report continued:
"In most cases the risk adjustment tipped the balance back in favour of the PFI option".
What is the risk adjustment, which rides up, like the cavalry, to save the day for the PFI wagon train? It is a figure that is inserted to try to account for the alleged transfer of risk from the public sector to the private sector as a result of the PFI deal. Risk assessment relates to potential problems that might arise in projects yet to be commenced. It is not an exact science. As Audit Scotland says in the strange language that we expect of public servants, there is an "inherent uncertainty and subjectivity" in the process.
I am reminded of the story about the reply that someone would get from a consultant if he was asked what two plus two was—"What would you like it to be?" Some of the comments that Audit Scotland made on the risk calculations for individual cases give the game away. For example:
"It is arguable whether school operations are subject to risks of a similar magnitude".
In another case, referring to a design risk adjustment against a council undertaking the work itself, the report said:
"the council's track record in completing other new schools in recent years had not given rise to significant adverse construction cost variances".
The risk assessment assumed that those adverse construction cost variances were actually happening.
Audit Scotland concluded:
"Without stronger evidence than available in this case it is not easy to accept that school operating costs are subject to risks of such a magnitude."
In other words, the risk transfer had been exaggerated. Yet it is only by virtue of that risk adjustment that the projects analysed would have been tipped from being more cost-effective under the public sector to being marginally more cost-effective under the private sector. In other words, it was a fiddle.
Does the member acknowledge that there were substantial elements of risk in the costs of that traditional procurement project known as the Holyrood building—so beloved of us all—and that those risks have come home to roost, and indeed are financial realities that the taxpayers are paying for? Will he acknowledge that the other building in Edinburgh of a similar scale that is being built under private finance, namely, the new Edinburgh royal infirmary, came in on time and on budget and is servicing the patients for whom it was intended?
If Mr McLetchie is saying that every public contract goes pear-shaped and that every private contract is fine, that is great—although I would point him to the example of the channel tunnel, which Mr Tosh apparently does not believe exists.
If Audit Scotland's comments were not enough to convince members that the scales are being somewhat arbitrarily and unfairly weighted in these calculations, it is Audit Scotland's consideration of the relative cost of borrowing that sets the seal on the Executive's decisions and suggests that there has been a fiddle. The fact is that the public sector can borrow at much lower rates than the private sector. Nobody argues about that. The difference can vary, but it is about 2.5 per cent to 4 per cent cheaper for the public sector.
On average.
Yes—on average, clearly. Despite that, the technique used for the PSC ignores that difference in costs. It uses instead an imputed cost of capital that bears no relation to the reality of the market.
Under that scenario, who is securing the risk of the money that is lent?
In which case?
In the case of Public Works Loan Board money that is lent to local authorities, who secures the risk, and who secures the risk in the case of money borrowed for a PFI project?
Clearly, the public secures the risk. If the minister is assuming that every public sector project is doomed to absolute failure, that is fine. The reason that the public sector can borrow at such a low level of interest is because the public has so many projects that it can spread the risk over them all.
The Audit Scotland report continues:
"the use of an imputed cost of capital measure rather than actual financing costs is justified by reference to wider economic considerations, under which it can be argued that financing costs do not have any role in public sector investment appraisal. The level of public spending as a whole is a macroeconomic decision".
And so it goes on. This a land where black is white, where dear is cheap and where Gordon Brown decides what goes. It is Gordon Brown who makes the macroeconomic decisions. It is he who is effectively saying that financing costs do not have any role in public sector investment appraisal. I do not know of any member who thinks that financing costs could not have a role in their own personal finances. Apparently, however, we are meant to swallow that idea in making public versus private comparisons.
Audit Scotland said:
"The consequence is that the cost of capital included in the PSC costing is currently some 2.5% to 3% higher than a council would actually pay if they borrowed to finance such a project."
On the basis of that ridiculous calculation we are meant to believe that PFI offers better value for money. A child looking after his piggy bank would be better placed to come to a sound financial conclusion than the people who dreamed up that kind of comparison or, as the deputy comptroller of the National Audit Office south of the border described it, "this pseudo-scientific mumbo-jumbo".
How much extra cost is involved in the projects that have been considered? Audit Scotland estimates that the extra costs of borrowing private capital add between £0.2 million and £0.3 million per year for each £10 million that is invested. That amounts to £8 million a year alone over the six projects that have been investigated, even at the lower end of Audit Scotland's estimate of the extra cost. That is £8 million each year for the next 30 years. That is some price to pay for adherence to the PFI dogma. Precisely the same analysis applies to all PFI projects whether in education, water or the health service. The taxpayer will bear the costs for the next 25 or 30 years.
The point is that there are alternatives. For some time the SNP has been putting forward the option of public service trusts. They would achieve the Government's aims of getting borrowing out of the public sector borrowing requirement and they would deliver borrowing rates that are almost identical to public sector borrowing, as opposed to the much higher borrowing levels in private sector finance.
It is interesting to note that councils and Government are coming round to that argument. There are projects in which the Government has floated the idea of using such trusts. Railtrack is one of the more interesting examples.
We are gratified that the Government has taken up our proposals. We are disappointed only that so much time and money were wasted before that happened. Even the trusts are only an extra resource, in addition to public borrowing by traditional methods. We are glad that, at long last, the Government appears to be moving towards a more logical system for public authorities' borrowing capital.
Existing PFI contracts might have delivered new schools, but they have delivered them at excess cost, for which we and our children will be paying for the next 30 years. The Audit Scotland report gives the Executive a chance to change tack. I hope that it takes advantage of that.
I move,
That the Parliament notes the recommendations of the Audit Scotland/Accounts Commission report on Private Finance Initiative (PFI) procurement in schools, Taking the Initiative - Using PFI contracts to renew council schools, and believes that PFI has proved to be a costly experiment, that local authorities and other public bodies should be free to use traditional public procurement and that, where "off balance sheet" solutions are desirable or necessary, these should be on a not for profit basis through bodies such as not for profit trusts and community trusts.
I welcome the opportunity that the nationalists have given us to debate yet again the tremendous progress that has been made on modernising Scotland's infrastructure to the benefit of 64,000 pupils in 80 schools throughout Scotland; to the benefit of the national health service patients in the central belt, for whom 2,884 beds have been provided; and to the benefit of our environment, as waste schemes have provided cleaner coastal waters and reductions in landfill. Those benefits have been brought about through our securing additional resources through public-private partnerships and private finance initiatives.
We have heard a lot of discussion that PPP is the only show in town. Payments under PPP are only 2 per cent of the Scottish Executive block and 10 per cent of our capital programme. To suggest that we are hide-bound by PPP as the only route for public sector investment is just nonsense. Ninety per cent of our capital comes under the traditional method. We have confidence in our public sector partners and we deliver daily on projects. It is absolute nonsense to suggest that PPP projects are all that we do.
I am saddened by the fact that in these debates we focus only on the financial route, not the conclusion. The public sector comparator does not reflect what Alasdair Morgan says that it reflects. It takes on board the capital costs of the project, the life-cycle maintenance provisions of the project and the facilities management aspects of the project. That is completely different from traditional procurement.
I was in local government as we chopped the budgets for fixing the roof in the depots and as we did not fix the windows in the schools because we could not cope with the demands and the pressure that our infrastructure was creating. Through PPP we are locking in, over 30 years, a first-class asset that will return to the public sector after those 30 years. We are also unlocking the resources that would otherwise have been spent on projects, and we are spending them on the infrastructure on which Alasdair Morgan wants us to spend them.
Capital allocations to local authorities have gone up by 39 per cent and allocations to health have gone up by a similar amount. We are investing in the traditional routes of providing capital to support our infrastructure, but we are using a novel system to do that.
I am grateful to the minister for giving way. We can understand why the Minister for Finance and Public Services does not like to debate finance—that is understood all round. Does the minister accept the conclusions of the Accounts Commission's report, which proves beyond all peradventure that PFI capital borrowing is more expensive than are the traditional methods?
I disagree with the member and I will come back to that point later on. I note the member's point about his having come fifth in the list and I am glad that he is here this morning. I am continually saddened by the fact that when the Executive and I focus on new schools, the infrastructure that has been provided for patients in our health service and the new transport that we are providing, all the SNP can do is talk down those improvements for petty political point scoring.
On the day that the SNP launched its proposal of public sector trusts, most of the financial sector in Scotland and beyond dismissed it. For the SNP to accuse the Executive of creeping privatisation when, over the past four years, we have increased the public sector spend in Scotland from £16 billion to £22 billion and the number of public servants in Scotland by 16,000, shows that it has the agenda all wrong. We are investing in the public sector and we are using other mechanisms by which to add to that investment. As I said, 2 per cent of our block goes to payments for PPP and 10 per cent of our infrastructure costs relate to that.
I thank the minister for allowing me to intervene. Why is it okay for local trusts to build swimming pools when it is not okay for them to build schools?
They can in the models that we are developing. We are happy to engage with trusts in the models that are coming through. We are engaging with local authorities. The Executive has supported the Argyll and Bute Council model for 12 months—its development is part of the process that we are going through just now. That is not to suggest that we are locking away ideas and potential. We are happy to discuss the options, but the SNP's option simply does not work.
Will the minister give way?
No. I have to make some progress, with all due respect, and I wish to move on.
The Executive's investments are making a real difference. We are not hide-bound by the strategy that the SNP deploys. It is incredible that yesterday the SNP put the disabled people of Scotland second to independence and this morning it has put the school pupils of Scotland second to independence. That is an absolute disgrace.
The 80 new schools and the £500 million of new money that we have put into public infrastructure are what counts. I am a parent and it is important for me that when my children go to school they are in a warm and dry environment. That cannot be dismissed, as Alasdair Morgan tried to do. Those schools are making a real difference in society. The head teacher at All Saints Secondary School in Glasgow says that truancy is down, achievements are up and the school is getting placing requests. Parents in Glasgow were leaving in their droves because of the state of the schools. We have reversed that trend in three years instead of in 30 years and that is the real step change. If the SNP could get over its determination to undermine the work of the Executive, it would accept some of the positive benefits that projects have brought.
Will the minister give way?
I have given way plenty of times. I do not intend to do so again. I have only a few minutes left.
PPP harnesses change and modernisation. I was brought up in the public sector. I know its strengths; I know what it can do well and what it can do very well. I also understand and accept that other people have good ideas that can benefit the infrastructure of Scotland and I am willing to embrace those ideas if they provide value for money and compare with the public sector comparator. They do so on every occasion.
Some sad people throughout Scotland do not understand all the things that we get excited about, such as PSC and value for money. If the general householder in Scottish who is paying a mortgage had the opportunity to lock away the care and maintenance of their property for 30 years, I suspect that they would look closely at that opportunity. There would be an extra cost, but they would not have to go to B&Q every Saturday in order to paint, wallpaper and do their plumbing repairs. They would lock away all the risk, which is the point that Alasdair Morgan failed to respond to when I intervened earlier.
The SNP is willing to take on risk through the public sector. We are willing to use a well-modelled calculation, which develops as projects go on. Let us not forget that the Accounts Commission's report relates to early PFI/PPP projects. We have moved on a long way since those projects were first developed. We now work more intensively on how we carry out the process for PPP models.
Will the minister give way?
I will take the intervention in just a minute.
We are learning the lessons of the early models and we are incorporating them into what we are doing. We are using standard contracts and we are reducing the high input costs at the start of contracts. Of course, as Alasdair Morgan said, interest rates have changed considerably since the projects were first mooted. The lessons from the Accounts Commission's report, which is out of date, have been learned and we continue to learn from the early projects. We have reduced the gap that exists in the SNP's traditional way of doing calculations. The projects still stand in value-for-money terms.
The minister cannot have it both ways. At the beginning of his speech, he spent a long time telling us how much normal capital was being given to local authorities, saying that there had been a huge increase. Is he saying that all that capital is being invested at huge risk?
No. Mr Morgan simply fails—or deliberately fails—to understand the processes involved. A project is first assessed for value for money by the local authority or whoever it happens to be. Only after that assessment is it measured against the PSC. That is when the decision is made on which funding route to take. That is what happened in the NHS: four projects went ahead by taking the traditional funding route that the public sector has always used; and four projects, after having been assessed and then measured against the PSC—taking account of the locked-in maintenance for 30 years, the risk being transferred to the private sector and the benefits of the whole process—were delivered by taking the new route of PPP.
People have talked about PPP being the only available option. Until PFI/PPP came along, the only option was the traditional route. That is why we have such difficulty with the current infrastructure in Scotland. The infrastructure requires a step change. I would like to resource that step change through the public sector, but we simply cannot afford to do so. If the SNP is suggesting that we raise taxes to the levels that would meet the public infrastructure costs, I would like to hear its tax policies for the next election.
The processes of PPP/PFI bring in additional money to the Scottish block, allowing capital investment to take place. That is how we will deliver for the people of Scotland. In these debates we seem to forget what the Executive is really interested in. Yes, value for money is important and, yes, we must ensure that projects measure up against the PSC but, more important, we must provide beds and hospitals and first-class facilities for our school pupils. Those are the things that matter to the people of Scotland.
The hospital at Hairmyres is a much-derided project, but I will tell members of one of the benefits of that project: instead of the 24 different sites of the old hospital that I used to use, my family and my constituents can now use the first-class—world-class—facility that is the new Hairmyres hospital. That is the real benefit of PPP.
I move amendment S1M-3228.2, to leave out from "notes" to end and insert:
"recognises, in developing Scotland's infrastructure, the real progress being made through a balanced and sustained investment programme and the vital contribution which public private partnerships have made already in modernising Scotland's infrastructure and public services, and welcomes the Executive's intention to continue to encourage such partnerships, as part of a range of funding options, wherever and whenever they present themselves as providing the best value solution."
I will start by making a statement that I think we can all agree with: the priority of Government and Opposition parties must be to improve public services in Scotland and to seek innovative, cost-effective solutions to do that. PFI, or PPP as it is now, was a Conservative initiative from 1992 and it offers just such solutions.
Critics of such schemes often base their objections on private companies making a profit. However, such criticisms ignore the fact that contractors that are involved in purely public sector capital programmes will also make a profit. The profit incentive puts pressure on companies to perform. To argue against that implies that inefficiency in the public sector does not matter, as if money grows on trees.
Will the member give way?
In a moment.
PFI provides one option to address the need for infrastructure improvement. It is not the only game in town and it is fraudulent to say that it is. As a tool, it brings in new resources and new disciplines and it delivers capital projects early. It also removes risk. It is strange that the SNP never considers the opportunity costs of either no delivery or postponed delivery.
The early PFI projects have given us a chance to learn and to refine. The minister is right about that. From the very beginning of PFI, we have consistently said that we would have to learn from the process and refine it. If we consider other commentators, and not just the ones that Alasdair Morgan quotes, we find that the gap is narrowing on costings, even on the finance side.
I am delighted that Mr Davidson concedes that there is a gap and that the gap does not favour private industry. Will he confirm that private sector finance adds a significant cost and that objective people such as the National Audit Office and our own Accounts Commission and Audit Scotland confirm that a significant cost has not been taken into account in considerations of the PSC and PFI?
Mr Adam has not been listening. We have learned from the Audit Scotland report. If Mr Adam looks at the new information, he will learn that the gap is narrowing. His party does not put a value on the delivery of affordable services that are on time and up front and that have a built-in lifetime cost.
The minister referred to his time in local government. In the past, local government tended to go for the cheapest option. We now witness the dereliction in schools and public buildings, especially in Labour local authority areas. The authorities have often ended up paying the price of constant alterations to specifications during delivery. With the new discipline, such problems have gone. The knowledge and experience that are available benefit public investment in this country.
Even during the Finance Committee's inquiry into such issues, the SNP was threatening to release a minority report. I have no objection to that, but I hope that—
What evidence have you got to say that?
I was at the Finance Committee meeting last week.
I hope that, as part of the committee's inquiry, the SNP will supply evidence on how its trust idea would work. We need real costings and not just the notional figures that we hear all the time. There is an ideological opposition to PFI, and the weird idea that anything in the public sector is wonderful and anything in the private sector is inherently bad.
I have spoken about figures, but let us look at some of the facts about what the SNP does around the country. In Angus, the leader Rob Murray admitted that, without PFI, Angus would not get the A92. He did not seem to have any problem with that project. In Aberdeenshire, a £35-million PPP for school modernisation has all-party support. In Banff and Buchan, Mr Stevenson's constituency, all the SNP councillors voted in support of PPP. They did so happily and with no problems at all. It is not for me to mention hypocrisy in any shape or form, but we have already heard about SNP councillors in Mr Morgan's area of Dumfries and Galloway. It seems that the SNP has one story here in the chamber but that, on the ground, its guys just go with the flow, because they have no real opposition to the plans at all.
The answer is very simple. If we are denied options other than PFI/PPP for finance in local government, what does Mr Davidson believe we should do?
The answer to that is that the SNP should come up with some solid and workable solution that can be put into the melting pot so that the Parliament can consider it.
Let us hear from the minister.
Yes, I thought that he wanted to come in.
I was invited to come in by Mike Russell. I am not sure where he appeared on the SNP's lists of candidates, but he has an important contribution to make.
We have increased local authority capital allowances by 40 per cent and we are about to give local authorities a prudential scheme that will allow them to borrow the amounts that they wish. We have also brought in all the school budget improvement schemes that Cathy Jamieson has mentioned before. There are plenty of options.
Thank you for that. I am always glad of a bit of support from the minister. In my amendment, I welcome the Executive's adoption of our scheme. We are very pleased about it.
Mr Morgan's statistics are very selective; I can be just as selective back. PricewaterhouseCoopers reported on a survey of 27 PPP projects. It received feedback from the public and private sectors and from service users. People were overwhelmingly pleased that they had better facilities, better environments and more comfortable and better hospitals that let professionals do their jobs better and apply their professional skills.
The Arthur Andersen/London School of Economics survey showed that, in certain circumstances, the public sector was beaten by PFIs by an average of 17 per cent on efficiency.
Alastair MacNish, the Accounts Commission chairman said:
"The evidence is that PFI is delivering real and very practical benefits and the Commission welcomes this. The scale and impact of some of the projects is unprecedented and it is good that … the PFI providers are delivering new schools and services effectively and on time."
The controller of audit and deputy Auditor General Ronnie Hinds said:
"PFI has undoubtedly produced benefits in terms of better management of large construction projects for new and refurbished schools."
My colleagues will deal with health, transport and so on. As I have said before, I welcome the conversion of new Labour to our innovative approach. However, we have to ask what we are supposed to be doing in this chamber—having a slagging match or seeking to deliver good and effective services for the people of Scotland by any means that are affordable and effective. Public investment must always be based on value for money, which must acknowledge the early delivery of quality projects and the benefit that that brings.
The SNP remains the troglodyte party in the Scottish Parliament, steeped in the outdated ideology of centralism, state control and hatred of the private sector. Indeed, the SNP displays a fear of partnership, which is a way of harnessing the strengths of the private and voluntary sector for the public good. That is the only way that Scotland can move on. Today, we have heard nothing new or substantive. We have been treated to yet another display of hypocritical cant from the SNP.
I move amendment S1M-3228.1, to leave out from "the recommendations" to end and insert:
"the Audit Scotland/Accounts Commission report on Private Finance Initiative procurement in schools, Taking the Initiative – Using PFI contracts to renew council schools; welcomes the availability of such schemes which enable local authorities and public bodies to work in partnership with the private sector to deliver much needed capital projects early and in a cost-effective manner utilising private sector risk management and construction contract expertise, and further welcomes the Scottish Executive's support for this innovative approach."
I begin by thanking the SNP for choosing the topic for debate. It is a major debate and at its heart is one of the most significant issues that faces the Parliament: the chronic underfunding of public capital assets in Scotland and more broadly throughout the UK. That underfunding has taken place largely under the disastrous and short-sighted stewardship of the Conservatives, but has continued to a considerable extent under the current Labour Government. Hospitals, railways, schools, houses, water and sewerage infrastructure and leisure facilities have all been allowed to crumble before our eyes. The neglect of our public capital assets can only be described as criminal.
Let me state the position of the Liberal Democrats in broad terms.
Will the member give way?
I hope that Phil Gallie will allow me to get into my speech a wee bit before I take an intervention.
We have no particular philosophical commitment to either nationalised or privatised provision. We regard economics as a means to an end, not as an end in itself. Our commitment, which we are prepared to back by higher taxation where necessary, is to high-quality public services that are universally accessible. Indeed, that is our guiding principle. Other people tie their colours to the rather dubious masts of particular economic theories of public service provision.
In 1999 we criticised PFI on best-value grounds and because the public would not own the assets at the end of the contract periods. We have always found it hard to understand why Gordon Brown has stuck so rigidly to the artificial constraints of the public sector borrowing requirement, rather than adopt the more sensible tests that are used by many of our European colleagues. In the partnership agreement, the Liberal Democrats obtained significant improvements in PFI/PPP in Scotland. Nevertheless, as has been said, councils and health boards have been forced into PFI/PPP by Treasury restrictions, rather than because that was demonstrably the best way in which to access capital.
Could Mr Brown tell us what specific improvements to PFI/PPP the Liberal Democrats secured under the alliance agreement with the Labour party?
Two things moved forward; one related to the ownership of assets at the end of contracts and the other related to the test of best value and how that was applied. As some people have said, it is a developing concept and the matter has been taken on board and improved as we have gone on.
In 1999, our manifesto called for the use of community partnership trusts. We are pleased to see that concept being developed—as Andy Kerr mentioned—by Paul Coleshill, who is an economist and Liberal Democrat councillor, into the non-profit distributing organisation model that Argyll and Bute Council has put forward for its schools.
The Audit Scotland report identifies, as the SNP recognises, that the cost of private finance is higher than the cost of public sector finance. I have to say, in agreement with the SNP, that the differential of 2.5 to 4 per cent is not peanuts and must be acknowledged as being significant. The report also recognises that the PFI schools procurement process is expensive. However, the central issue is the quality and effectiveness of the end result. Will the minister confirm that, in future projects, the extra cost of private finance will be taken into account in project assessment? It is worrying that the Audit Scotland report says that the actual cost of debt financing
"is not included in the comparison"
and that that is
"a relevant if not necessarily decisive factor in testing … a PFI contract."
Let me make a comparison. Glasgow's large stock of council housing was built using traditional public sector low-cost capital. There are many arguments about stock transfer, but it is undisputed that the stock as it stands is, as a whole, virtually worthless. In other words, the lower interest charges that have been paid over many years are relatively small beer in the overall scheme of things. Much more significant are issues of management, long-termism, effective use of funds and whole-life maintenance.
I thank Robert Brown for allowing me to intervene, given that I entered the chamber after he had begun his speech. However, he has missed the point. Just because the cost of capital is low does not mean that it has released money for investment. The point is that the debt has constrained reinvestment in Glasgow city housing, which means that the stock is in an appalling state. The best way to guarantee more investment is to lower the cost and focus it.
No. Andrew Wilson has missed the point. That is only one aspect of the issue. The biggest and most overwhelming feature has been bad management of Glasgow's housing stock over many years. That dwarfs the issue of the interest charges to which we have referred. That problem can be found in many sectors of public sector capital provision over many years.
Audit Scotland also recognises that PFI has provided real benefits. It has delivered the service reliably, rapidly and broadly within cost and it has promoted best value. The report notes that PFI school contracts transfer risk, offer superior technical solutions and encourage innovation and that they focus on service and outcomes. However, the report notes that those benefits are not necessarily unique to PFI. The report also identified the downsides: new buildings inevitably cost more than old buildings, inadequate funding may reduce service levels and revenue resources are tied up for 30 years.
We need an end to the PFI/PPP monopoly and we need to introduce alternative procurement models, such as the Argyll and Bute model—the minister talked about that model in favourable terms—against which PPP options can be measured. Audit Scotland and the Local Government Committee recommended that PPP should compete with alternative models. The Audit Scotland report is a valuable, dispassionate and independent contribution to the debate on PFI, but it is a pity that the SNP has been prepared blatantly to quote selectively from it, rather than consider the report's general thrust and recommendations.
What is the SNP's position? It seems that the SNP is against private profit. John Swinney, one of the few figures in the senior ranks of that party to survive the night of the long claymores, has called repeatedly for the "madness" of building schools and hospitals for private profit to be ended. I find it difficult to understand why private profit from hospitals and schools is bad, but private profit from house-building is good. What does the ostensibly business-friendly wing of the SNP think of all that? Is the SNP against builders making profits when they build hospitals and schools? How come the SNP's much-vaunted and rather curious Scottish public sector trust is intended to attract private finance to fund such building?
Will the member give way?
If it is to answer that particular point, I will give way.
No, Mr Brown—you are in your final minute.
Sorry. Is the Scottish public service trust good private finance that has been washed clean by the pure milk of nationalism? There is a yawning gap between the SNP's protosocialist rhetoric and the reality of its policy.
Let us discuss the current bids for school refurbishment throughout Scotland. The motion does not say it, but it is clear that the SNP wants to halt a decision on those bids in order to review PPP. Those projects could improve the fabric of school buildings for more than 200,000 children. They are publicly maintained school buildings with a maintenance backlog of £1.3 billion in the public sector. In effect, the SNP would condemn children to continue their education and staff to continue working in cramped and run-down accommodation—draughty school huts—for the sake of its prejudices and because it cannot take a balanced view of the Audit Scotland report.
The state of Scotland's schools requires action now. We must not hold up the current batch of proposals while we fight over the delivery vehicle, which is a means to an end, not an end in itself. I support the Executive amendment.
We move to open debate.
The speech that we have just heard gives the lie to the myth that the Liberals are the honest and interesting people of Scottish politics. We have heard a dishonest misrepresentation of the SNP's position. Robert Brown's speech echoed the position of Mr Davidson and Mr Kerr.
Please sit down.
The SNP is committed to public services in Scotland. We want the best that we can provide and we could provide many more services under the plans that the SNP proposes. The Tory party began to do so and the Labour party has continued to pour excess profits into the pockets of developers, rather than put it into books, equipment and the future of our children. That is the simple fact.
Whatever model it chooses to use, who would build schools under an SNP Administration? Would they build the schools for nothing?
The same people would build the schools as are building them now, but they would not build them for excess profits. [Laughter.] This is fascinating: the huge laugh is that the parties that are sitting across the chamber are locked into a private sector model that makes prisoners of them. They cannot think their way through the difficulty that they are in. However, it is fortunate that there is a party that can.
Will the member give way?
I do not think that Mr Brown should be inflicted on members again.
There are two considerable problems that we have to address today. Indeed, there are many more problems. Mr Morgan's masterful approach to the issue outlined all those problems. I am always happy to come second to Mr Morgan because he is a man who knows what he is talking about. [Members: "You are fourth."] Members must take my words at face value.
There are two key problems. One is the attrition of education budgets. One of the most fascinating figures in the Audit Commission report shows that 24 per cent of the non-staff education budget in Glasgow is being spent on the cost of PFI projects. That means that the amount of money that is available for education in Glasgow is declining and will continue to decline.
Will the member take an intervention?
No. We will listen to Mr McNulty when he speaks later.
Later in the debate, Fiona Hyslop will go into the decline in the amount of money that is available, but the reality is that the money that is available for education is being squeezed not just in Glasgow, but in councils throughout Scotland. The inevitable result of PFI is that less money, rather than more, is available for education, which leads to school closures and poorer education.
There is also an extraordinary policy constraint within PPP and PFI projects. That is illustrated on page 52 of the Audit Commission's report. There are many complex issues around risk, but the real risk in education is being taken by the councils. PFI/PPP contracts tie the councils to issues of demand for service and volume usage, and to changes to requirements and service specifications. That sounds very technical and does not sound very interesting. However, it means that for 25 years, councils that are involved in PFI/PPP projects cannot improve education through their policies because their policy options are constrained solidly by contract. We are not just mortgaging our future; we are closing down the options for improving public services in Scotland.
The Parliament must think imaginatively. We have to think creatively about the future. I noticed that there has been praise for the Argyll and Bute model. It is interesting that there has been praise for a model that has been developed, although we have not yet heard an announcement from the Scottish Executive about when that model will be implemented. I hope that we might hear about that later today.
Will the member give way?
No thank you.
I believe that everyone in the chamber wants better public services. The SNP is saying—others should listen—that we could get even better public services if, in the words of the Chancellor of the Exchequer, we are prudent in how we go about it. Prudence will give Scotland more than will the incompetence of the current administration and its ideological masters.
Now that everyone has registered their intentions, I ask members to stick to a four-minute limit because time is tight.
One of the characteristics of debates on PFI and PPP is that members evade the real issues. We heard a copybook example of that from Mike Russell.
There are issues about PPP/PFI and alternative systems of procurement. There are issues about the transparency of the model, about accountability and about the revenue effect. However, misquoting and misrepresenting the figures in the Audit Scotland report does not take us even an inch forward.
Members should look at headings in part 3 of the report "PFI schools and value for money". The report says:
"The evidence to date on key deliverables is positive … There are substantial benefits from schools PFI compared to traditional procurement … There is innovation and fresh thinking … There are improved relationships and better partnership working in some cases … There is better risk management"
and
"There is strong financial control."
All those things are said in the report, but no account is taken of those dimensions by the SNP.
The report says other things and we have to address those issues. The Finance Committee is considering a range of issues surrounding PFI/PPP and how we progress it alongside traditional procurement. An attitude of "two legs bad, four legs good" gets us nowhere but, all too often, that is what we hear from the SNP.
The big picture is important. Mike Russell should be aware that, in Glasgow, £280 million has been spent on new schools that now exist. That is a substantial advantage to parents, pupils and teachers. I quote Tom McDonald from the Flourish of April 2002. Mr McDonald is the head teacher of All Saints Secondary School, one of the schools that the Finance Committee went to visit. He said:
"Moving into a state of the art facility has provided a massive boost to morale for everyone: staff, pupils, parents and the whole community. The feel-good factor is high and everyone has an extra spring in their step. The contrast between an under-maintained, badly lit, leaking building and our new campus, where the facilities are amongst the best is terrific. It underlines the importance education should have in society and it strengthens the place of Catholic education in the city."
Those are very positive things.
Will the member give way?
No. Sit down.
The SNP's approach represents the fact that John Swinney has found the philosopher's stone. He has found a way to get new money out of thin air, that has no cost or is cheaper than can be found in the marketplace.
I see that the sorcerer's apprentice is standing up.
Let us be clear. It might be the case that non-profit trusts might be able to secure funds at rates that are marginally more advantageous than the rates that are available in the private sector. However, that would only be the case on the basis that the Government would underwrite the debts. Liability for any failure of the trust would fall to the trustees. Who will the trustees be?
The SNP suggests setting up a quango to oversee the development of public funding in Scotland.
Will the member take an intervention?
No, the member is in his last minute.
The reality is that putting a trust in place would not necessarily bring anything to the innovation process. It would operate as an intermediary and accountability through local authorities would be lost because that quango would decide where the money was coming from. It would do nothing but borrow. It would have no positive impact on the efficiency of the buildings or on risk transfer.
The SNP must explain and demonstrate more clearly how the trusts would work. It has not been able to do that and there is no track record or evidence. The SNP has not even clarified the concept. I am not saying that the SNP cannot do that, but until it does I do not think that it has much to contribute.
Today's debate is another depressing example of the SNP's dogmatic opposition to the use of private finance, despite all the evidence of the benefits that it can bring in terms of new investment in school buildings, hospitals and roads.
This is of course, the same SNP that Mr Wilson constantly tells us is now a pro-enterprise party. However, his new status as number 5 tells us all that we need to know about what his party colleagues think of that proposition.
We all know that the default mode of the SNP is a hostility to the private sector that would be worthy of Tommy Sheridan. It is not an attitude that is likely to win friends in Scotland's business community. The SNP thinks that the public sector must be kept pure and untainted by contamination by the private sector. In the debate on the powers of the Parliament that took place a few weeks ago, Mr Swinney said:
"We want to ensure that money that should be spent on our hospital wards does not provide the profits of private shareholders."—[Official Report, 2 May 2002; c 11480.]
However, when that statement is analysed, we can see how ludicrous it is. Does it mean that drugs companies will not be allowed to make a profit on drugs that are supplied to the national health service in the SNP's socialist republic? Does it mean that companies that supply medical equipment to our hospitals are not allowed to make a profit? As Mr Brown asked in his speech, what about the builders, the plumbers, the joiners and the electricians who all play their part in building and maintaining the infrastructure of our hospitals and schools? Are not they allowed to make a profit? Just where does the SNP draw the line?
I point out that in Central Scotland the SNP got five times as many representatives as David McLetchie's party got, which should tell him something.
We are not against companies selling to the public sector at a profit; we are against excess profit. How is it that the banks can make 3 per cent profit over and above the public sector comparator, yet the Conservatives accept that as a good use of money?
I would love to hear Mr Wilson's definition of excess profits. Let us analyse that. The comparisons that have been made demonstrate that there are many instances in which the PFI/PPP model provides a better standard of building and service than the traditional method does. I do not see why we should be so dogmatically opposed to one option and favour another.
As I have said on numerous occasions, no one particularly cares that general practitioners in the NHS are private contractors who usually own their own surgeries. People are concerned about the standard of health services that they receive, rather than about who owns the bricks and mortar.
The SNP motion refers to not-for-profit trusts.
Will the member give way?
I am sorry, but I must move on.
In some cases, a not-for-profit trust might be a suitable model, but if the SNP is so in favour of not-for-profit trusts, why is it so hostile to the involvement of the independent sector in the provision of health services? After all, I observe that BUPA is a not-for-profit organisation. The fact is that the SNP wants not-for-profit trusts in a not-for-profit Scotland, which is why its policies would impoverish Scotland.
For taking the biscuit in terms of hypocrisy, the Liberal Democrats, rather than the SNP, win the prize on this issue. Their manifesto in the last Scottish Parliament election was called "Raising the Standard", but it should have been called "Double Standards". Time and again we have heard Liberal Democrats say one thing in the chamber, but the opposite in constituencies and councils throughout Scotland.
Their approach to PFI is typical. Only last week in the Parliament, in the Conservatives' education debate, the Deputy Minister for Education and Young People, Nicol Stephen, boasted about the use of private finance in new investment. He said:
"Do not allow dogma to block the major new investment that so many of our schools need so desperately."—[Official Report, 13 June 2002; c 12684.]
In Edinburgh, the council's Labour administration has been given the go-ahead to use private finance to build 14 new schools and to refurbish four others, but Mr Stephen's Liberal Democrat colleagues on the council say that that represents the privatisation of city schools. We lodged a question to the Executive asking whether the PPP scheme for schools in Edinburgh was a form of privatisation. Back came the response from Mr Kerr, who said emphatically that such schemes are not a form of privatisation—they are long-term contractual arrangements for the provision of public assets and related services. Mr Kerr is absolutely right, but it is not the Scottish Conservatives he must educate, but his Liberal Democrat partners.
When it comes to improving the infrastructure of Scotland, neither the SNP nor the Liberal Democrats has a clue. Mr Kerr talked about lessons learned. Labour has learned the Tory lessons and we commend it for that. There are many other good ideas where they came from.
I want to talk about the practical problems of PFI and the drive for profit, and to offer some practical solutions. We are getting to the nub of the debate. The Government's argument is that if we do not have PFI, there will be no investment. That is absolute nonsense. The problem is that there are constraints. PFI is a straitjacket—at the end of the day Gordon Brown decides. He holds the purse strings and that is what limits and restricts the Parliament in what it can do in financing.
I will address what is happening in West Lothian. A series of West Lothian schools are being built under PPP. The primary school at Linlithgow Bridge, which was promised 20 years ago by Lothian Regional Council, is finally being delivered. It is interesting that, because of the tight margins in the PPP project, there is no spare capacity for after-school clubs, so a local hall is being used, from which the local pensioners are being moved in order to ensure that there is enough space for after-school clubs. If we took a commonsense approach to investment, we would make sure that we had the facilities that are needed.
A second example is Low Port Primary School. It has submitted a planning application to have some of its facing turned from stone into wood. Why is it doing that? Because it must save time and money. Members should think about the maintenance costs. That is an example of pushing to make sure that profits are achieved on time. Life-cycle maintenance will deprive us of investment. The extra cost of the PFI projects is equivalent to £18 million. The extra money that we must pay in interest and capital should be spent on teachers and books. We are storing up problems for the future. Everybody knows that such projects are more expensive.
Another example is Armadale Academy, which was left out of the PPP project. It desperately needs refurbishment and window replacement. A letter from the school board to the education authority states:
"The School Board were, equally, horrified to learn … that increased and unexpected costs in relation to PPP1 were diverting capital money from exactly those schools who were assured that they would benefit from their exclusion from that project. If this is the case then this is scandalous. These schools have benefited in terms of facilities and accommodation from their inclusion in PPP1 and, now, are draining scarce resources away from those schools, such as Armadale, who desperately require improved school accommodation."
If that is happening in year one of the PPP, imagine what will happen in years 15 or 16. The problem with PPP is that it will drain resources.
Two years ago we had a debate in the Parliament on practical solutions for investment—the SNP offered several solutions. PFI is ideologically driven, because it is constrained by the borrowing rules that Gordon Brown insists on at Westminster. David McLetchie said that the new Edinburgh royal infirmary is not costing us any money. If he had read the report of the pan-Lothian review group, he would know that we are now facing strategic change deductions—1 per cent cuts in health services throughout Lothian—to pay for the excess cost of the PFI project at ERI.
Will the member give way?
No.
That is a case of extra costs for private profit, which is affecting Lothian health services across the board.
We offered the Executive practical solutions two years ago. We raised five points. We called on Gordon Brown to open up the £60 billion war chest. That was done. We called for increased freedom for local authorities to borrow the money that they need. The SNP offered that solution two years ago, but only now is it being considered. We called for relaxation of the 75 per cent claw-back rule. That has not yet been done, but it should be. Two years ago we asked the Executive to abolish section 94 consents, but only now is that being considered. Finally, we called on the Executive to set up feasibility studies into the replacement of PFI schemes by public service trusts. I am glad that some councils in Scotland are doing that. We could do with a bit of leadership and direction from the Executive. It has not provided those, but the SNP will. We will provide the solutions; the Executive creates the problems.
The debate is about how we as a nation construct, repair and refurbish the buildings—schools, hospitals or even prisons—that house our public services. We know that there has been a lack of investment in school repair and building programmes and because of that we are trying to catch up. How much of that should be a cost to the public purse and will we seek private capital to maximise our ability to deliver? The SNP seems to have accepted in principle the argument that we cannot do everything from our block grant, and that some private investment is needed.
Balancing the nation's resources against priorities is the difficult bit of government, but that is precisely what the Executive is doing. Our Minister for Finance and Public Services has said that 90 per cent of capital comes from public funds, so we are arguing about 10 per cent of the capital and the ways in which we can get value for money from the private sector.
The SNP seems to support Labour's priority of mass repair, building and refurbishment of public sector buildings, but given that we are embarking upon a mass project, a variety of funding methods should be used. The SNP has not addressed the fact that it is not public capital for one school that has to be benchmarked against PPP, but public capital for several schools. It would be helpful to know how much of the Scottish block grant the SNP would spend on new schools.
In my constituency of Glasgow Kelvin, Glasgow City Council has done an excellent job of refurbishing and modernising many school buildings, which is difficult to do, given the age of some of the buildings. At Hillhead High School, pupils used to have to walk outside to change classrooms, but now they do not. Teachers and pupils have, however, complained that they could have had more say in the design of the school. The lesson needs to be learned that teachers and pupils need to be involved in projects so that they are happy with the overall result.
There are more public sector buildings in my constituency that I want to mention. Glasgow royal infirmary's new maternity hospital was built entirely from public money, as were the new-build facilities at Gartnavel hospital and the new medical school at Glasgow royal infirmary. We should never lose sight of the amount of public money that is going into new buildings. In fact, PPP is not the only game in town, and I am pleased to have heard the Minister for Finance and Public Services say that.
The issue that needs to be resolved about PPPs is the continuation of the two-tier work force that penalises low-paid workers. I particularly welcome the First Minister's statement that he will, in partnership with the trade unions, end the two-tier work force; I know that important discussions are going on. There are still domestics and portering staff at the new Hairmyres hospital who receive no sick pay and who have no pension scheme and who still earn £4.10 an hour, regardless of whether they have worked for one month or 10 years. That phenomenon is not peculiar to PPP; it is also a phenomenon of the private sector and it needs to be tackled now.
There has always been discrimination against blue-collar staff compared with the treatment of professional staff. In the health service in particular, blue-collar workers have lost parity with their professional colleagues in relation to pension schemes, pay and conditions of service. That has been done so that private companies can make and maximise profit. There must be stricter guidelines on what private companies can do under PPP contracts. That must be done not only in relation to conditions of employment, but in relation to the numbers of staff that we need to clean our hospitals and schools. We will always have to learn lessons from what we do.
For the future, we must continue to allow a variety of options to fund our public sector infrastructure, whether we use PPP or another model. I was pleased to hear the minister say that the Executive will continue to consider other models and that PPP cannot be the only solution. Labour will continue to deliver on new schools, but it is important to remember that the public look to the Parliament to ensure that quality of service is delivered in the public sector.
Public infrastructure investment is clearly a key part of our nation's performance. It is a measure of our wealth and quality of life. It is a measure of the coherence of our political leadership and of the ability of the government system to deliver nationally and locally. It is evident from looking around Scotland that the system is not delivering. Roads are potholed and there are no completions to the network. Schools are a national disgrace; hospitals likewise. Housing, prisons, the water supply and everything else are in dire need of investment.
Roughly speaking, we are presently investing in public service capital investment a sixth of the share of the economy that we were investing in 1970, and the situation is getting worse. A combination of the Barnett squeeze and lack of borrowing powers in Scotland is placing a squeeze on public service investment. There has been a crisis in our schools that the Government has had to address, and the quick fix has been a PFI scheme that has made Scotland Europe's PFI capital. Yes, we all want new schools and, yes, people will enjoy the fact that new schools are delivered, but the point of the debate and of what the Accounts Commission for Scotland has said is that such an approach is bad government. The long-term costs will beggar future investment. That will leave us back here in 10 to 15 years' time in an even worse position.
Services are diminished now. The schools that are provided are less adequate than they could be and the services that are delivered are not as good as they could be. Since PFI started, it has been argued in the abstract that the mechanisms that used to deliver the public service comparator hidden from public scrutiny have now been opened up by the National Audit Office in England and the Accounts Commission for Scotland. That reveals that the present situation is unsustainable. Capital provision should be brought in at the lowest possible cost, but the page on schools in the Accounts Commission's document shows that Falkirk Council is being charged twice the mortgage rate that is paid to private banks. That is what I object to. I object not to people using good enterprise to make the best for themselves, but to people ripping off the public sector for excessive private profit.
I once earned a meagre living as an economist for the Royal Bank of Scotland. The profits made by that bank were excessive, and it is now the third most profitable bank on earth. The Royal Bank of Scotland knew, and most of the people involved in the private sector know, that the profits are excessive and unacceptable. Our job across the political spectrum is to protect the taxpayer from excessive private profiteering. I argue that the ideology and dogma of the McLetchie-Kerr axis—behind a policy that is just not working—is failing Scotland badly. In an ebullient but content-free speech, the minister failed to rebut the points that were made by Alasdair Morgan and other members. Capital is more expensive by the PFI route and the minister must prove where the private sector efficiencies can come.
Given Andrew Wilson's concern about the protection of the public, will he tell us who should be protected from the politicians who run the Holyrood project, who think that they can do a better job than the private sector?
I do not quite square that circle, but I shall give Ben Wallace credit for one point. Even Sir David Steel, in his measured contributions to the debate, has pointed out that the Holyrood project illustrates the fact that Scotland has no borrowing powers. We therefore have a ridiculous situation, echoed in Pauline McNeill's comments, in which we are paying for capital investment out of current revenue funding. That is absolutely nonsensical.
Scotland needs to equip the minister to do what he said. I think that the cat is out of the bag; the minister said that he would prefer to finance projects through the traditional route. We need to use the best possible mechanism. It is silly to say that we cannot do that and that therefore PFI is the best route. If we equip Scotland with borrowing powers, we can place before policy makers the range of options that will get the best deal for the public sector. The Orwellian doublespeak of Labour's criticism of SNP proposals is unacceptable. We need a range of options so that we can get the best possible investment into our public service infrastructure. In the short term, we should use a not-for-profit trust to pool the resources of the public sector and get the lowest possible costs. In that way, we can begin to win back some public faith not just in politicians but in the ability of the government system in Scotland to turn round the mediocre performance of Scotland and start to make the nation proud of itself again.
I speak today, as one of the health spokesmen for the Conservative party, to point out the benefits that PFI has brought to people on the ground. Eight of the major hospital projects that are being built and delivered in Scotland are based on PFI, and four of them are entirely PFI projects. In fact, most of them originated under the Conservatives. Hairmyres hospital, for example, was given business approval in 1994. I would not go so far as to say that it is a lie to claim that eight new hospitals are being built under new Labour, but perhaps "economical with the truth" is the phrase that should be used. In fact, only the Royal Aberdeen children's hospital was given business case approval after the general election in 1997.
Right now, people are getting the health care that they need because of PFI. I speak to patients and professionals and all the people who use the hospital services of the NHS in Scotland. They are concerned about getting treated on time. They are concerned about getting the right treatment with the most modern equipment that they can possibly get. That is what concerns them—not PFI and not different projects proposed by the SNP, but whether they will get treated in time. For patients in the health service, time matters.
Will Mr Wallace concede that, if we were able to do things cheaper and therefore able to provide more services, PFI might not be the best route?
I do not think that we would be able to deliver eight major projects in a oner any cheaper or any quicker under any alternative system, so I will not concede that point. As has been pointed out, there is a value in getting things delivered as soon as possible. That matters to people who wait for diagnostics and who, if they have to wait for more modern equipment to be provided, may be in a worse state of health further down the line. There is a lot of value in time in health care, and it is important to point that out.
We should also remember that a lot of propaganda has been put out, mainly by the SNP, against PFI. Who could forget Nicola Sturgeon, whom I remember only in my nightmares these days, turning up at a new PFI hospital in the west of Scotland—I think that it was Hairmyres hospital—where she pointed out that the leaking light was the fault of PFI? That was irresponsible to the patients using the service and the staff who were delighted with their new facility. There will be teething problems in every new building, whether it is one of the brand new buildings that are being built in Leith or the new Scottish Parliament. A leaking light does not make the whole project a problem caused by the private sector or whoever built it. It is extremely irresponsible to disappoint people who are just pleased to be in a new hospital with new machinery and who see that they are being valued by Government.
David McLetchie is right to point out that a double-standard propaganda war is being carried out by my Liberal Democrat colleagues to my left. In my constituency, Sir Robert Smith, the Liberal Democrat candidate, told the residents of Stonehaven that they would have to pay for the new PFI hospital. Three months later, once he was elected, he opened the new PFI hospital. None of us will ever be fooled by the Liberal Democrats' position on PFI. We are yet to see what they can achieve. I doubt that they achieved their demands to the Executive in the partnership for government negotiations. I suspect that the matter that we are discussing was hardly even raised. They were much more concerned about getting ministerial posts and how to get out of the tuition fees fudge.
The SNP has got things wrong. PFI is needed and is producing a good health infrastructure. There can be improvements in how contracts and their details are negotiated—I concede that that process is on-going. We need to ensure that we always take the best approach, but we should not block things with dogma and give people no alternative.
I call on Tom McCabe, who will be followed by Stewart Stevenson. I ask both members to restrict their contributions to three minutes, as time is tight.
Anybody can see that it has been a bad week for the SNP—that is a plain statement of fact. Perhaps in a charitable moment, it might be thought that the SNP could be excused for looking for a diversion, but coming to the Parliament and condemning the provision of new hospitals and schools is hardly the best way to do that.
Yet again, SNP members have come to the Parliament to carp, complain and distort not only the findings of the Accounts Commission on PPPs, but the daily experience of people in Scotland. Apparently, for Andrew Wilson, the route to success is to paint Scotland as a dark and bleak place where nothing—schools, hospitals, water services or transport—works. The SNP's route to success is to talk down Scotland.
Why do SNP members behave in that way? The answer is straightforward. The SNP is not an Opposition and its members do not know how to oppose. There is evidence of that in SNP councils in Scotland. SNP councils that promote PPPs and explain their benefits to their electorates find themselves condemned in the Parliament by their own party. They must wonder who tore up the rule book.
The SNP stuns parents, teachers and pupils throughout Scotland when it condemns the provision of new schools. It stuns and exasperates patients and professionals in the health service when it condemns the provision of new hospitals. When evidence of success is presented, the SNP goes into denial. Last week, the best that it could manage was to get a few old friends and a well-known newspaper to distort the outcome of the Accounts Commission's inquiry into PPPs.
Will the member give way?
The member has only one minute left.
I ask Mike Russell to sit down, as I am going to be nice to him.
Last week, I detected the hand of skilful operators such as Mr Russell, who would seek to intervene. What thanks does Mr Russell get? He is pushed even further down the list of the SNP's candidates. He is one of the SNP's best operators and one of its most effective advocates in the Parliament, but he is rewarded by being shoved down the list of candidates. That is how the SNP rewards people who try to help it. Such treatment is shabby and disgraceful and is evident from how it tries to distort the realities of public provision in Scotland in 2002. What are Scottish voters supposed to make of a party that cannot rejoice at more than 70 education projects? What are they supposed to think when old and demoralising health buildings are replaced by new hospitals? I will tell colleagues what they will think—I appreciate the time that the Presiding Officer is giving me. It will not matter how often John Swinney pretends to be Mr Angry or how often Alex Salmond dons a red wig and a tartan bunnet: the last thing that voters will do is vote for the SNP.
I note that Mr McCabe has been moved from the front benches to the back benches, but he would not wish me to comment unduly on that. On behalf of Mr Russell, I thank Mr McCabe. Mr Russell will be happy to pass on the cheque shortly.
Did I hear an echo of 1979 in Tom McCabe's speech? Should we rejoice, rejoice, rejoice? Darrin Grimsey is a partner in PWC—it is strange how often that company comes up in this context—and is based in Australia. He speaks about Scottish conditions with some liberality. He said that the Tories promoted PFI as
"a preferred procurement method—a position which did not change with the incoming Labour administration".
Not much changes.
We do not condemn new schools—we condemn the waste of the £8 million that my colleague Alasdair Morgan mentioned. That money could build more new schools and SNP members would welcome that. We might even use the word "rejoice".
Des McNulty made some interesting comments about trusts. [Interruption.] I know that I have exaggerated there, but I will deal with his comments for the sake of debate. He said that trusts may be marginally cheaper, but they have no effect on the running of operation. That is good news. If trusts have no effect on operation, we can use them to reduce costs.
I want to turn to costs. Some figures are beginning to leak into the public domain—for example, in the prisons, the figures are 7.05 per cent for Pucklechurch Custodial, 7.05 per cent for Medomsley, 8.04 per cent for Moreton, 7.05 per cent for Lowdham Grange and 7.05 per cent for Kilmarnock. Alternatively, if the company that runs Kilmarnock prison rather than the holding company is considered, the figure is over 8.5 per cent. Those differences are interesting.
There is another interesting issue relating to Kilmarnock prison that is at the heart of PFI projects. We are not even sure where the risk that is associated with the projects—which often justifies the high interest rates—lies. The annual accounts of Kilmarnock Prison Services state that the PFI asset is being transferred to the Home Office. We have been told that that is wrong, but apparently it is. The Scottish Prison Service is involved. That seemed mysterious, so I spoke to the financial director of Premier Custodial Group Ltd in the past couple of days. He said that the company no longer carries substantial rewards or responsibility to have that fixed asset on its accounts. In many ways, that method of cloaking finance in a mystery inside a PFI leaves us in the dark over what is happening.
We could get money for much less. We should separate off the finance from the delivery of the services and from the building of the buildings and not confuse people about costs.
That takes us to winding-up speeches. Iain Smith has four minutes. I remind him that time is very tight.
The debate has focused on the past rather than looked ahead to the future. That is particularly true of Alasdair Morgan's opening speech, in which he selectively quoted parts of the Accounts Commission's report that backed up the SNP's preconceived prejudices about PFI and PPP projects. He did not look to the future and he did not consider the lessons that can be learned from the Accounts Commission's report and how we can improve the operation of PFIs and PPPs and provide better value for money in the future. Furthermore, he did not bother to propose any other models of funding, despite the fact that the SNP always wants to talk about them.
The SNP's motion mentions different models of funding, but we were not given any information about how they would operate. That was disappointing. There were no thoughts about other innovations in Alasdair Morgan's speech. If he is so confident that PPPs are such bad value for money compared with traditional procurement or other routes, I do not know why he and the SNP feel the need to ban consideration of them. Local authorities and hospital boards should be able to consider options and find out whether those are best value for money. The SNP simply says that we cannot even consider such options.
The Liberal Democrats believe that councils should be free to examine a range of funding options for projects, from traditional procurement methods to, for example, not-for-profit options such as those that are being developed in Argyll and Bute on the basis of Liberal Democrat proposals. Councils should be able to examine new models that have not yet been considered. Why should they not be considered? PFI and PPP options should be considered. Decisions should be made on what provides the best facilities in the best time at the best value for money and not on how projects are funded.
The SNP approach would stop councils from examining all those options and would limit opportunities to develop their facilities. In fact, Mike Russell wants to stop the present round of bids completely, including Argyll and Bute Council's not-for-profit trust. He said in his speech that the Executive has not made an announcement on that project. It has not, but on 13 June, he said that he wanted to halt all announcements on the present bids. He does not want to hear the Executive's response to Argyll and Bute Council's bid.
Traditional procurement has not served public buildings well. That is one of the issues that we must bear in mind. Part of the reason for the huge backlog in repairs to our public sector buildings is that traditional procurement does not address the long-term issues. In that model, we build the building and then forget about it. We come back 20 years later and discover that we have forgotten to maintain the building adequately. That is a big issue.
Traditional procurement does not serve some projects well. In my constituency, we have Bell Baxter High School, which is a split-site school and has one very old building. I know it well. I was there as a pupil, starting in 1972. It is an appalling building. The Minister for Education and Young People visited it a few months ago and saw for herself how awful it is. It has taken years and years for the refurbishment of Bell Baxter to enable that split site to be closed and the children to be housed in a single building. Even when that happens, which will—I hope—be at the end of next summer, the pupils will still have to use facilities at the old school.
Traditional procurement has failed Bell Baxter because it has not allowed the building to be developed as quickly as it could have been. The result of that is that the old school site still cannot be reused for a new primary school, which is also required in Cupar. The old school is still in business. The additional costs of maintenance, heating and of the additional teachers who are required for a split-site school, as well as the additional equipment and duplication are still incurred because the traditional procurement method has failed to allow Bell Baxter to be redeveloped.
We must get away from the sterile ideological argument about whether public is best or private is best. We need to develop a range of innovative options for capital investment for our councils and public bodies. They need to be able to invest in our public services in a way that provides the best services for the public, using the best option that is available for a particular project to provide the best value for money. I urge members to reject the SNP's narrow-minded motion.
When I saw the topic of the debate a few days ago, it created an element of excitement. The SNP has it right: it is proper that the Parliament should consider important issues such as the public infrastructure in Scotland. However, the narrowness of the SNP's motion disappointed me and made the debate futile. I am disappointed that the SNP has concentrated so much on the private finance initiative, or whatever new term members like to call it by. Everyone has picked up on that issue and that is the way that the debate has gone. This is a lost opportunity for Scotland. We should have been talking about the overall infrastructure. Andrew Wilson, just for a few moments, mentioned some of the issues. Stewart Stevenson, by concentrating on prisons at the end of the open debate opened up another aspect.
Scotland has a good infrastructure on which to build. The previous Conservative Government—and the present Government to some degree—created telephone networks and information technology systems that have allowed the whole of Scotland to participate in a new, international environment that offers great opportunity for those who want to promote Scotland and create wealth and prosperity in the land. We find improvements in other areas also. The road infrastructure improved dramatically between 1979 and 1997. That was important for the jobs that are so badly needed in Scotland.
PFI is only one small element in the funding of that infrastructure. I welcome the fact that Andy Kerr has seen the light. I listened intently to his comments, all of which I had heard before. I heard them between 1992 and 1997, when Tory ministers were trying to educate the Houses of Parliament that PFI was an option that local authorities and other public sector bodies could use to provide the public sector services that are needed to set up infrastructure.
I was disappointed with Alasdair Morgan's initial foray into the topic, in which he once again suggested that all that the Conservatives did in the past was destroy the range of options. However, Andy Kerr gave the lie to Alasdair Morgan's argument by pointing out that, of all the public sector capital expenditure in Scotland, only 10 per cent goes down the PFI channel.
The debate would have been much better served if members had concentrated on the other means of public investment. The SNP provided one option, which was for public service trusts, but we need to consider other ways of finding funding to provide the services that we require.
David McLetchie rightly mentioned the Scottish Parliament building project, in which the public sector has got things totally wrong. The way in which the specifications were laid out—indeed, everything about that task—shows all that is bad about public sector involvement. If the project had been a PFI and the specification had not included such a tight time schedule, we might have benefited by avoiding the massive escalation in the costs of the building.
The debate is too important to centre on narrow political objectives. We must look at the wider scene. I hope that the minister's response to the debate will widen out to deal with investment in the prison service, in housing and in other aspects of public infrastructure. Perhaps he could look back to the Tory investment programme of the 1980s, when we put a lot of money into repairs and maintenance programmes for our older housing. That was an important infrastructural change, which ministers should consider when they are looking at future value for public money.
A great many good arguments have been made by colleagues on the Executive side of the chamber. Those were started off by Andy Kerr and continued by Des McNulty, who made a very effective speech. The speeches that were made by Robert Brown, Iain Smith, Tom McCabe and Pauline McNeill all added to the flavour and quality of the debate.
Not only do we have a growing programme of capital investment in Scotland's infrastructure covering all the sectors that Phil Gallie mentioned, but that portfolio of investment is part of a balanced programme of capital investment. The Executive has no ideological barriers about securing the necessary investment in Scotland's infrastructure, such as in schools and hospitals, provided that such investment secures best value. As is proper, we are balancing the opportunities that are available to us through PPP with conventional procurement, which still accounts for 90 per cent of all the capital investment that goes into our infrastructure in Scotland.
We are also achieving that balance through things such as local trust models and mutual models of investment. As Andy Kerr described, we are supporting Argyll and Bute Council to develop a local trust model along with Partnerships UK. The prudential scheme that is to be introduced and the abolition of the requirement for consents under section 94 of the Local Government (Scotland) Act 1973 will give local authorities much more choice in how they proceed with capital investment. That will provide access to investment for all the sectors of our economy, including health, education, roads, water and sewerage. We will achieve outcomes for people across Scotland of the kind that have been achieved in education, where 64,000 pupils now have access to first-class facilities that they would not have had but for the use of private finance in public infrastructure.
Several SNP members made points about the horrors of private sector profits and, as they described it, excess profit. However, they were not prepared to define the difference between profit and excess profit.
Will the minister give way?
If Alasdair Morgan will let me develop this point, I will give way after that.
The SNP members tried to portray the use of private sector resources in the public sector as something new, but that is not the case. Who built all our schools, hospitals, roads and drainage systems over the past century, if not private firms? Who were some of the richest people in this country over the past century, if not those who built our infrastructure? Vast profits were made at the expense of the public purse. However, the crucial difference between the past and the present is that, whereas the risk and the maintenance responsibilities used to remain with the public purse, things are much better today, because we can now transfer that risk to the private sector. The risk that is transferred is not some notional or alleged risk but the actual risk. The private sector now has to carry responsibility for building repairs and for the mistakes that it makes—we have all seen such mistakes in the public sector in the past. The private sector is required to maintain the buildings for public use.
PPP has had the great advantage of making the whole-life cost of a building—not only the cost of capital, but the cost of capital plus the costs of repair and maintenance over a prolonged period—visible up front when the asset is secured. That secures much better value for the public. That is a step forward from the past, when public infrastructure was secured and then left to crumble after construction.
The minister threw his hands up in horror at the concept of excess profit. I remind him that Gordon Brown in 1997—I realise that the deputy minister did not belong to the same party as the chancellor at that time—used the concept of excess profit to justify the windfall tax, which paid for the new deal. More recently, Gordon Brown used that concept to levy an extra tax on the oil industry.
My complaint with the SNP is that it does not define the difference between profit and excess profit. Fiona Hyslop said that she was against not excess profit, but private profit—full stop. Thankfully, PPPs have taken us beyond the bad old days when the public procured and the capital asset depreciated through lack of investment. We are engaging the private sector on different terms from those that were used in the past and on terms that are more beneficial to the public purse.
Alasdair Morgan's point about PPPs displays the contradictions in the SNP about the matter. The SNP is riddled with contradictions. Its plans for public service trusts do not work. They do not shift the risk from the public sector, because ministers must act as guarantors for the risk. That means that the risk remains with the public sector and is not shifted off the balance sheet. That means a cost to the Scottish budget. As usual, the SNP is silent on the source of that money. Which other public sector projects would the SNP ditch to finance additional infrastructure? How much more tax would it raise to finance the gaps that it would leave? We look forward to hearing about that when the SNP sums up.
The SNP takes a selective approach to the private sector, because even in its own trust model, it plans to use private finance to construct and fund projects. The SNP says that it opposes PPPs, yet it plans to—and does—use them. During the limited number of times that the SNP has been trusted with any form of power in Scotland, it has used PPPs. Before it was kicked out from Moray Council, the SNP there used a PPP to finance IT in schools. Highland Council's education, culture and sport committee has an SNP chairman and uses a PPP not only for schools, but for IT. That gentleman went to London—that most reviled place in the minds of SNP members, except that of its exiled leader—to collect a prize for the best PPP project in the UK.
Perth and Kinross Council, of which Bruce Crawford—who has now returned to the chamber—was leader before the SNP was kicked out, used a PFI to finance a new council building. That was used not even for front-line services, but for a new administrative block.
We heard from David Davidson how Angus Council uses private finance for roads. In opposition on Aberdeenshire Council, the SNP still supports the council in moving forward. In Falkirk, the SNP supported the procurement of schools. We should watch not what the SNP says, but what it does. The evidence is perfectly apparent.
Of course, Fergus Ewing suffered a recent embarrassment. He wrote to a minister to support Highland Council's bid for a PPP while Mike Russell, the SNP's education spokesperson, was saying that such things had to be stopped. Fergus Ewing was supporting the chairman of Highland Council's education, culture and sport committee—the same SNP councillor who went to London to receive a prize for the best PPP in Britain. Now Mike Russell has instructed Fergus Ewing and that SNP councillor to stop that schools project and no longer to support it.
What a shambles the SNP is. It lets its old-style dogma, prejudices and ideology stop children and communities from obtaining new schools. That is why the people of Scotland will continue to trust the Executive on such important matters.
I call Brian Adam to wind up for the SNP. You are entitled to 10 minutes, but we would be grateful if you could shave a couple of minutes off that as we are running behind.
I might be able to help.
It was spectacular hypocrisy from the deputy minister, who represents the Highlands and Islands, to suggest that the SNP has more than one position on this matter. He and his colleagues went into the election telling us that they were going to do something about the Skye bridge scandal, but what has happened? Nothing. The bridge is the most spectacular failure of PFI and nothing has been done to redress that. The Executive continues to refuse to give figures for buying out the contract. When will the Executive—in particular Mr Kerr—answer the people of the Highlands, who deserve to know why it has reneged on its promises? Labour candidates promised that they would put the Skye bridge back in the public sector and get rid of the tolls, but they have not done so. That is one of the ways in which PFI got off to an extremely bad start. We are now in the position where assets are no longer left in the hands of the private contractors, but excess profits that are made because of changes in interest rates still fall to the developer and not to the public purse. Perhaps we are beginning to see a change in that.
The Accounts Commission report identifies a series of cases in which all the benefits accrue to the private sector and all the risks accrue to the public sector. The Executive has admitted today that there is merit in the not-for-profit trust route. However, until now, the Executive has not approved applications to use that route. It is high time that it did so. The Executive and Des McNulty, the convener of the Finance Committee, have admitted that financial benefits can come from the not-for-profit trust route. Those benefits can be applied to provide more public services, better public services and a greater range of public services, through improvements in the infrastructure. It is high time that the Executive accepts that that is the case. If that route is cheaper now, it was cheaper in the past. It is now time for the Executive to accept that the argument about public service trusts is valid. The risks that are associated with such trusts are virtually nil.
Brian Adam and I have wandered round Scotland over the past six months or so, looking at projects where the benefits of PFI/PPP are manifest. Can Brian Adam demonstrate anywhere in Scotland where a not-for-profit trust has delivered anything like that? Why has the SNP not been able to flesh out its argument for not-for-profit trusts? I am not opposed to them, but the SNP has not said what they are or how they would work.
That is because at every turn the Executive has blocked any opportunity for trusts to be set up. The only benefit that can be demonstrated is the provision of new services. Those services have been restricted by the Executive, as it has allowed excess profits, which are identified in the Accounts Commission report, and that has restricted the amount of work that can be done.
In addition, there are affordability arguments. Mr Kerr and his colleagues have today referred several times to the fact that 90 per cent of public procurement is through traditional routes. I would like to see exactly where that 90 per cent has been spent.
Just a minute. Let me develop my point.
It is certainly not the case that 90 per cent of public procurement in the local authority sector has been through traditional routes. Great attempts have been made to play up the fact that many PFI projects have happened in local government, which is true. Traditional routes certainly do not account for 90 per cent of public procurement. I would be delighted to hear from Mr Kerr if he wants to give us the details. I suspect that the figure is arrived at because PFI/PPP does not work unless there is a £10 million budget. A substantial amount of what is bought, in terms of capital, comes at a figure much lower than that. I think that the Executive is aggregating up all the small amounts to arrive at the figure of 90 per cent, but if there is another explanation I would be delighted to hear it.
Will Brian Adam take an intervention?
No thank you.
I would like to know what proportion of items over £10 million have been acquired through PFI/PPP.
We have seen that the public sector comparator is deeply flawed. There is evidence that anything between 2.5 per cent to 4 per cent is built in and fixed against the private sector comparator.
I do not believe that the case for PFI/PPP has been made in any way.
We have been accused of holding an ideological position on this issue. However, the ideology is to be found solely on the Labour benches. We are trying to provide better value for money through a system that has been proven to be cheaper. The convener of the Finance Committee conceded that, although he is not prepared to concede that the Government ought to allow not-for-profit trusts to be set up so that we can produce the evidence. The evidence that under PFI risks are transferred to the private sector is inconclusive, to say the least. The ultimate risk taker is the public purse, because if any PFI scheme fails, the public sector must still provide the service and all of us must pay for that.
I commend the motion to the Parliament.