A council plan to spread the cost of PFI debt over 50 years rather than the initial 25 isn’t “good policy”, a Conservative councillor has claimed — warning it will end up costing the taxpayer more money.
The ‘reprofiling’ of PFI [Private Finance Initiative] payments — deals which saw the private sector investment in public schemes, like schools and roads — helped East Renfrewshire Council plug a funding shortfall of around £18m.
A large chunk of the budget gap was covered by the use of the fiscal flexibility, allowed by the Scottish Government, with the council using £7.5m of a “one-off benefit” of £14.8m this year.
READ MORE: Glasgow parking fines and on street charges will rise from April as new budget kicks in
Councillors also agreed to use a £2.7m recurring saving, meaning the method helped to reduce the budget blackhole by £10.2m. Council leader Owen O’Donnell, Labour, said the move was “very sensible” and he was “very comfortable” with the decision.
However, Cllr Gordon Wallace, Conservative, said the council had no option but to use the flexibility, but it would be “ultimately more expensive”.
Speaking at the council’s budget meeting last week, he said: “This isn’t suddenly some kind of magnificent windfall and is very much just a paper exercise.
“It’s like a homeowner taking a 25-year mortgage and then saying ‘I can’t afford it, I’ll make it 50 years’. The reality is we are going to be paying for something over a longer period of time and could well find ourselves paying for assets which are beyond their useful life.”
He added: “It’s just to get real here. The money is not there so the Scottish Government is having to find mechanisms which allows councils like ourselves to spread our costs over a much longer period of time.
“I don’t believe it’s good policy but unfortunately it’s a policy we are having to follow. I don’t think we’ve got any other option. This is not new money, this is just borrowed money over a longer period of time which will ultimately be more expensive.”
Cllr O’Donnell, who has an accountancy background, said when “you are looking at assets you build, you spread the costs over the expected life”. He added there are “very strong maintenance contracts” included in the deals.
At the budget meeting, Cllr O’Donnell said the plan delivered “really welcome relief” and thanked council officials for their work.
Margaret McCrossan, the council’s chief financial officer, said she understood the concerns that Cllr Wallace had raised, but the council is “limiting ourselves to the period over which we spread the debt liability for each asset”.
“The absolute maximum would be the asset life that is determined by our professional valuers,” she said. “They follow a professional code and see what the life of any building is expected to be.
“If we were building a school of our own, we would expect that to last 50 years. These PFI concessions are paid for at the moment in a contract over 25 years and they are well maintained, as they have to be as part of the contract.”
She added: “We are absolutely certain that we would expect them to last another 25 years and that it is appropriate therefore to share the debt cost over the full life of the asset.
“We are not doing anything different for the asset life for those schools than we would do for a school we built ourselves.”
READ NEXT -
Second man charged after Greenock dad killed in doorstep 'shooting'
Janey Godley 'couldn't breathe' as she 'nearly chokes to death' on stage at Glasgow SEC
Glasgow youth project 'busiest time ever' as demand soars amid cost-of-living-crisis
New Glasgow Barras mural unveiled and it's set to be the latest selfie hotspot
Glasgow shop sign blunder warns customers against 'consummation of food and drink'
