SNP’s infrastructure quango needs an “urgent root and branch” review

Jim and Margaret Cuthbert said the finances of the SFT were under a “cloak of secrecy”, making it impossible to know if it was delivering projects at a reasonable price.

Labour claimed the quango was borrowing cash at “Wonga rates”, leading to unnecessary costs and profiteering.

The SFT, which is behind £2.4bn of road, school and hospital projects, was set up in 2008 to be a cheaper, smarter alternative to the Tory private finance initiative (PFI) and Labour’s public private partnerships (PPP).

Many current projects are being delivered by five regional hubs bringing together public bodies and the private sector.

The Cuthberts said the hubs were dominated by a handful of big construction firms, most headquartered outside Scotland, cutting small Scottish suppliers out the deals.

They also said that, because the hubs were not subject to freedom of information, their finances and profit margins remained opaque.

They estimated they borrowed most of their long-term “senior” bank debt at around 5 per cent interest, and riskier “subordinate” debt from other lenders at around 10 per cent.

They said the rates appeared “unduly high” given the current cost of borrowing, with one hub expected to repay three times its original subordinate borrowing over 25 years.

The respective interest rates were around 6-8 and 15 per cent under PFI/PPP.

The Cuthberts also said there were inadequate safeguards to ensure the SFT was operating robustly, and a review of its work was needed to keep it on track.

Their report said: “Given the lack of auditable information, it is very difficult to tell whether SFT is delivering optimal value for money in either the narrow or broad sense: but there are worrying indications that it is not."

It added there was “a significant danger that local authorities may over-stretch themselves on the continuing payments arising from SFT projects”, especially given budget squeezes.

They recommended hubs be subject to freedom of information; their key performance indicators be reviewed; and the SFT’s work be independently reviewed and challenged.

Mr Cuthbert said: “Our research indicates a number of serious issues about hub and SFT activities, including lack of transparency, potential adverse effects on industrial structure, and worries about long term financial sustainability.”

Mrs Cuthbert added: “Our paper questions whether the hub structure provides a good environment for encouraging organic growth in the economy, particularly since the hub approach will tend to limit small and medium enterprises to a subcontracting role.”

Labour MSP Jackie Baillie said: “We need an independent, root and branch review of how the SFT operates, given the scale of the problems uncovered by this report.

“The current approach is cloaked in secrecy, but we know there are serious questions about future funding.

"It looks like the government has maxed out the credit card without knowing if it can afford the repayments.

“It’s like going to Wonga for a mortgage and not sustainable for the public purse.

“This approach to financing means even less money for public services at a time of crushing austerity.

SFT needs to be urgently reviewed and refocused. We need the accounts opened up showing all our assets and liabilities across the public sector. Only then can we begin to make sensible investment decisions for the future.”

The SNP Government said the SFT had saved £924m, with £2.4bn worth of projects progressed to date through its non-profit distributing (NPD) model.

A spokeswoman said: "The NPD and hub models enable investment in public projects in Scotland to be brought forward more quickly than would otherwise be available through our capital allocation and limited borrowing powers. They also balance future operational and maintenance risks between the public and private sector."

She added: "The NPD/hub programme is fully transparent and NPD has received a clean bill of health from Audit Scotland. We provide annual investment estimates as part of the draft budget process, and six-monthly updates to the Public Audit and Post Legislative Scrutiny Committee on the progress of projects."