John Swinney considered selling Scottish Water and CalMac ferry fleet

“In the longer term it might be possible to dispose of SW [Scottish Water] completely, potentially realising large capital sums,” he wrote in a paper shared with the Scottish cabinet.

“Looking at transport, the ferry fleet should be saleable, and in principle we do not need to retain it in our ownership.”

However he said a “sale and leaseback arrangement” of the fleet would be difficult to explain to island communities and lead totextra costs on day-to-day revenue spending.

The west coast ferry fleet is owned by state-owned Caledonian Maritime Assets Limited, while the boats are operated by state-owned CalMac.

Mr Swinney urged cabinet colleagues to “think outside conventional assumptions in terms of disposing of assets” to raise cash.

The pleas came as the early SNP government wrestled with the cost of inherited hospital, school, road and rail projects just as accounting rule changes limited their funding options. 

The problems, disclosed in cabinet papers released by National Records of Scotland today, have a strong contemporary resonance.

Last month SNP finance secretary Shona Robison warned Scotland faced a 9.8% cut to its capital budget for instructure projects between this year and 2027/28.

However the next day, Transport Secretary Mairi McAllan committed the government to spending £3.7bn on fully dualling the A9 between Perth and Inverness by 2035.

Prioritising the road upgrade is almost certain to mean delays for other capital projects unless ministers can raise more money through asset sales and other measures. 

The SNP now insists state-owned Scottish Water will stay in public hands, however in September 2008 Mr Swinney’s cabinet paper “Finance risks and issues: capital” showed he was ready to sell off a huge range of public assets if necessary.

With the financial crash which started in the US subprime property market already well underway, the Scottish Government was keen to invest in building to boost the economy.

Under the heading “Advice to Ministers - Scale of the Challenge”, he wrote: “Cabinet has expressed a strong interest in the contribution that capital spending can make to stimulating the Scottish economy and helping it to emerge strongly from the current slowdown. 

“The focus on capital budgets is sharpened by the fact that, over the next 5 to 10 years, several very large public capital projects are in prospect, notably the South Glasgow Hospitals project and the Forth Replacement Crossing. 

“Both of these are the biggest of their kind in Scotland's history.”

He said it was clear that projected capital funding would “fall significantly short - by around £1billion a year - of the total required to maintain existing capital spending programmes and to cover the range of major new investments in prospect”.

The Scottish Government therefore needed to “maximise the capital budgets available to Scotland” and make existing assets “work as hard as possible for us”.

He stressed the need to “maximise receipts from the disposal of surplus assets” and revealed that officials had been working on an “asset management strategy which includes scope for generating further asset sales in the medium to longer term”.

He went on: “We need to be prepared to think outside conventional assumptions in terms of disposing of assets. 

“Within my own Portfolio, we are actively looking at options which would cut our capital spending on water (from current levels of around £180m). 

“In the longer term it might be possible to dispose of SW completely, potentially realising large capital sums. 

“Looking at transport, the ferry fleet should be saleable, and in principle we do not need to retain it in our ownership; but current arrangements give added reassurance to Island populations that the lifeline services are secure. 

“Some sort of sale and leaseback arrangement would be difficult to explain and would of course add to revenue pressures.

“We could decide to move the enterprise bodies out of their remaining property activities. 

“This would mean a loss of revenue which supplements their budgets, and would be sensitive given the importance we attach to actions that will help to grow the economy, but could be seen as giving more scope to the private sector. 

“A more limited option would be to sell some of the blue chip property assets. But clearly there could be an issue about market conditions for selling such assets at present.

“Looking outside my own portfolio, Rural Affairs and the Environment includes the Forestry Commission estates. 

“There are obvious options around a disposal programme, but we would lose the revenue from timber sales which funds part of Forestry Commission's operating costs. 

“There are also investments and loan books which it might be possible to sell. 

“Finally, there are a number of other bodies funded wholly or partly by Scottish Government that may hold surpluses, including local authorities (although it would be difficult to draw these into the equation) and social landlords particularly housing associations.

“It might be possible to access these, but very difficult to contemplate putting the surpluses to uses other than social housing.”

Mr Swinney also proposed getting Treasury permission to switch resources from revenue to capital budgets, despite increasing the “burden on resource budgets”.

He asked all cabinet secretaries to look at their own portfolios over an 8-year time horizon to 2016/17 and estimate the “headroom” that could be created to help pay for major projects.

He said each cabinet secretary should “review options, including radical options, for selling or otherwise realising capital value from assets which we are not obliged to retain to achieve our purpose and objectives”.

In discussion, the cabinet acknowledged “the uncertainty and risk to schemes which were currently being planned” and that “difficult political decisions” were likely.

Ministers noted “the scale of the challenge the Scottish Government faced in accommodating within capital spending authority limits the many, very deserving, capital projects already under construction over the next 10 years”.

They also accepted “they would need to stand ready to identify projects or programmes that could be held back or discontinued, in order to ensure the highest priority schemes could progress” and that it was important to tackle the issue “systematically and rigorously”.