Saturday, 30 June 2012

Paying for schools and hospitals

At least three English health trusts are on the verge of bankruptcy. Despite services already having been scaled-back and staff numbers reduced, the nightmare scenario of hospital closures looms large.

In reaction, the UK’s right-wing media points the finger of blame at incompetent managers in the public sector. Newspaper articles and television bulletins have featured so-called ‘experts’ telling us that hospitals run by the private sector would not have allowed such a financial situation to develop. The reality, however, is very different.

The reason some English health trusts are experiencing severe financial problems is because, over the past ten years or so, they embarked on programmes to deliver new hospitals, and funded the construction and maintenance of the facilities by using the Private Finance Initiative (PFI) or its replacement, Public Private Partnership (PPP).

Those of us who live in North Ayrshire are well aware of PPP deals. The North Ayrshire Council Schools PPP Project is notorious within local government circles. However, for those not aware of the situation, I’ll summarise as briefly as possible: the previous Labour administration of North Ayrshire Council decided to build four new schools – St Matthew’s Academy, Saltcoats; Arran High School; Greenwood Aacdemy, Dreghorn; and Stanley Primary School in Ardrossan. The capital value of the schools, when new, was put at £80m, but the total value of the contract signed by the Council was £380m, which includes maintenance for a 30 year period – that’s £10m every year.

North Ayrshire Council only ever had one credible and viable bid for its Schools PPP Project. Two bids were submitted, but one was from a company that had no office, no accounts, no history of involvement in building or maintaining schools, and which claimed to be a subsidiary of a well-established Singapore-based corporation - the corporation denied any involvement.

The company behind the second bid also listed three ‘referees’ who, it claimed, would vouch for its credibility: all three people subsequently confirmed they had not agreed to be referees and they had not been aware their names were used in this context. Meanwhile, the bid submitted by the company comprised largely of pages downloaded from the web sites of other organisations.

All of these facts were brought to the attention of North Ayrshire Council, and at the first Key Stage Review of the bids submitted for the PPP contract, the local authority’s own external advisors referred to the ‘second bid’ as “materially non compliant”.

However, the Council maintained – and apparently still maintains – that this bid provided ‘genuine competition’ for the one that was finally awarded the £380m contract. In reality, there was no competition. North Ayrshire Council only ever had one viable and credible bid.

Four months ago, at the February meeting of North Ayrshire Council, SNP councillor Tony Gurney rightly challenged the then Labour administration over the cost to local taxpayers of the Schools PPP Project. In response, the then Leader of the Council, Labour’s David O’Neill, pointed out that the Chief Executive of the Scottish Futures Trust (SFT), Mr Barry White, had indicated his belief that North Ayrshire got a good deal from PPP.

Cllr O’Neill made reference to Mr White’s opinion because the SFT is the SNP Government’s replacement for PPP and PFI. The significance we were all supposed to appreciate was that even the man charged with implementing PPP’s replacement felt North Ayrshire Council’s PPP Project had been a good deal.

Perhaps, though, Barry White’s endorsement was not as impartial as it might at first have seemed.

Prior to taking up the post of Chief Executive with the Scottish Futures Trust, Mr White was at one time a Project Director with an organisation called Partnerships UK, which acted on behalf of the UK and Scottish Governments in overseeing PPP deals: it was Partnerships UK that sanctioned the North Ayrshire Schools PPP Project.

Back in 2001 a Scottish Executive briefing on PPP read: “Partnerships UK’s transaction team works with a large cross section of Whitehall government departments, devolved administrations and public bodies to provide support ranging from detailed involvement as a co-sponsor on a particular project to occasional ‘spot’ advice on a particular PPP topic through a helpdesk service. The helpdesk service is there to be used by all public sector bodies, and anyone in Scotland requiring ‘spot’ advice, or more information on this service, should contact Barry White”.

Mr White has also worked for a company called Skanska, one of the biggest beneficiaries from PPP contracts funded by public sector money. When he joined Skanska in 2004, the company said, “Prior to Partnerships UK, Barry was a Director of Morrison plc, setting up the company’s facilities management business and developing and implementing the organisations strategy to move into the PFI marketplace.”

Even today, as Chief Executive of the organisation tasked with running the Scottish Government’s replacement to PPP, Barry White is on record saying, “We are absolutely ecumenical about the funding mechanisms that are used and it is not our role to have an ideological opposition to particular schemes. PPP schemes brought a number of benefits by transferring risk to the private sector and by allowing more schools to be built quicker than would otherwise have been the case.”

Just last week, during an evidence session to the Scottish Parliament’s Education & Culture Committee, Labour MSP Neil Bibby (West Scotland) asked Mr White: “You talk about the differences between the new scheme [the Scottish Futures Trust] and the historical PPP/PFI projects. Am I right in saying that the SFT recently won an award for the best promoter of PPP? If so, do you agree that the SFT is a form of PPP?”

Barry White responded: “You are right that the SFT won an award; that shows the progress that we are making. In fact, we have been delighted to win three awards, one of which was for the best central or regional Government PPP promoter, which we won against international competition. That shows that we have a pipeline of work involving colleges, schools, hospitals and roads projects that are forging ahead at a time when it is important to do that for the market. So if we use the term ‘PPP’ in its broadest sense, you are right that we promote PPP.”

Mr White’s organisation – the Scottish Futures Trust – will oversee projects given the go-ahead by the Scottish Government under Phase 3 of its ‘Schools for the Future’ programme, including a new North Ayrshire campus to accommodate a merger between Ardrossan Academy and Auchenharvie Academy, should the Council’s current submission be successful.

The main difference between the Scottish Futures Trust and Public Private Partnerships is that a cap is applied to the profits private companies can make from building schools and hospitals for the public sector. However, while the cap may prevent health trusts from subsequently plunging towards bankruptcy, it won’t stop private companies from filling their bank accounts with public money, just not to the exorbitant levels previously seen.

Overall, it seems few lessons have been learned from the notorious North Ayrshire Council Schools PPP Project. It also seems that councillors and officials have forgotten how local authorities funded the building of schools and council-houses before the introduction of ‘get rich quick’ schemes, such as PFI and PPP.

The Public Works Loan Board (PWLB) still exists and still makes available funding to public sector bodies. Loans from the PWLB come at low-interest, can be repaid over 50 years and, ultimately, the money goes back into the public sector. So why are councils and health trusts using PFIs, PPPs or the SFT?

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