Councils could free up hundreds of millions of pounds after PFI deal with Scottish Government

Councils could free up hundreds of millions of pounds for frontline services after striking a deal with the Scottish Government over private finance debts.

Local authorities will be able to cut annual repayments for historic school projects by spreading out the cost over a longer period of time.

One council source said: “It is a pretty big deal.”

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The controversial private finance initiative (PFI), introduced by the Tories in 1990, involves companies building new schools and hospitals and then receiving annual payments from public bodies spanning decades.

Other models exist, such as public private partnerships, but critics believe this financing method rips off the public and is a cash cow for multi-nationals.

According to Audit Scotland, the public sector is contracted to pay £40.1 billion in annual payments between 1998/99 and 2047/48 – over four times the capital value of the assets developed.

In practice, councils and health boards have to use millions of pounds every year from their budget to pay off the debt.

The Record can reveal council umbrella group COSLA and the Scottish Government have agreed a new set up that will reduce the burden for councils.

A COSLA paper states that councils will be able to “remodel” their debt over the life of the asset, instead of the shorter period of the life of the contract.

Total debts will not reduce but the move is widely expected to lead to the amount paid out on an annual basis falling.

With the recent Government spending review earmarking councils for a funding freeze until 2026, a local authority insider believes the flexibility could ease financial pressures.

A COSLA spokesperson said: “COSLA Leaders welcome the agreement by the Cabinet Secretary, as part of the Resource Spending Review, to change service concession arrangements to reflect asset life rather than contract life. For some councils, this will release funding which can be reinvested into communities to support recovery. We await guidance on implementation from Scottish Government.”

A Scottish Government spokesperson said: “COSLA requested flexibility to account for service concession arrangements, such as PFI and PPP over the life of the relevant asset to make the annual cost to taxpayers more affordable, and we are making this flexibility available to those councils who choose to do so.

“This reflects a change to the accounting treatment for such debt but does not involve any debt restructuring.”

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