Amidst the hullabaloo surrounding the Scottish Futures Trust, one part of the announcement has attracted next to no publicity. Kerry Lorimer reports
The development of ‘community hubs’ is designed to attract much-needed investment into GP surgeries, social work services and other community facilities. Because councils, health boards and other local bodies come together in local hub companies to procure facilities jointly over a period of years, procurement costs are substantially reduced. Services are planned in a more joined-up way that will make them more accessible to users. And, crucially, because it involves a critical mass of deals instead of lots of small, fragmented projects, it represents a much more tempting investment opportunity for the private sector.
As one of the first elements of SFT to be brought forward by the Scottish Government, the hub is an important indicator of how ministers see the role of the private sector in infrastructure investment – and a litmus test for their claim that SFT isn’t just PPP by another name.
Under the initiative, local hub companies will be established in five ‘territories’ across Scotland, overseen and partially funded by a national hub office based within the Scottish Government. Within the next month, the Government is expected to announce that the South East Scotland territory – which includes NHS Lothian, NHS Borders, City of Edinburgh Council, Scottish Borders Council, East, West and Midlothian Councils – will be the first pathfinder for the scheme, with the tender process due to begin by next summer.
The second pathfinder is understood to be the Northern territory hub, which covers Highland, Argyll and Bute, Aberdeen, Aberdeenshire, Moray and the island authorities.
John Swinney, Cabinet Secretary for Finance and Sustainable Growth, told Parliament in September the initiative would be “a catalyst and focus for better development and delivery of community-based facilities across the public sector” by improving the planning, procurement and delivery of local infrastructure.
“The hub concept not only includes joint planning and provision of physical infrastructure, but embraces wider non-financial benefits of investment including increased joint working for the benefit of service users, scope for flexibility in providing key public services, and lower costs of property ownership through sharing and integrating services where that makes sense,” he said.
The idea behind the hub is not new. Developed under the former Labour/Lib Dem administration as part of the public sector reform agenda, it drew heavily on the Local Improvement Finance Trust (LIFT) scheme used by the NHS in England to channel investment into primary health care facilities. However, the then Scottish Executive saw the hub going much further to include not just health but local government and other community-based services.
While Swinney’s statement was silent on the role of the private sector, the original model makes clear that one of the objectives of the hub was to attract private finance into the delivery and long-term management of local services. In return for their specialist skills and the capital they brought to the scheme, companies would be rewarded with exclusive rights to any projects being developed by the local hub company, and, all being well, stable long-term returns.
Tom McCabe, Minister for Finance and Public Services when the hub initiative was being developed by the Scottish Executive, says the model was predicated on the need to appeal to private sector investors by offering them a guaranteed flow of deals. “The view was it had to be developed in a way that was attractive to the private sector,” he says. “It is trying to put projects together of sufficient size in terms of volume and cost to attract the private sector into the long-term management of the thing.”
The private sector would provide a share of the capital, carry the risk for development and delivery, and take on responsibility for long-term maintenance, says McCabe.
“The public sector can procure services more efficiently and in a way that allows them to focus on what they do best [while] the private sector would provide some of the capital and would carry the risk for the development and delivery of the facility to the agreed budget,” he says.
McCabe is “not surprised” that the idea of the hub has been adopted by the SNP Government, but says it is in direct contravention of the party’s anti-PPP stance. “I can’t see any way that fits with the rhetoric that accompanies the SFT, the SNP’s condemnation of PPP and their distaste for any kind of private sector profit,” he says.
The hub without private finance would be like “breathing without oxygen”, he says. “You have to involve the private sector, and they will put a price on the risk they carry. The Scottish Government seems to be saying they will get them to carry that risk for less money. It defies the reality of the situation. The people who are carrying the risk will find a way of covering their costs.”
The story of the hub is a long and intriguing one. By the time of last year’s election, the model had been almost five years in the making. The strategic business case was completed by the end of 2006. A guide to the hub initiative running to 25 pages was drawn up by the Scottish Executive’s health department in conjunction with Partnerships UK, formerly the Treasury Taskforce, a body set up by the Labour Government in 1997 to reinvigorate the private finance initiative.
A further 10-page document was published by the Scottish Executive and Partnerships UK, explaining how the hub would work in practice. In a fictional territory served by two NHS boards and four local authorities, the private sector held three fifths of the total equity investment, with the remainder split between the national hub framework and local public sector partners. “Fundamentally…this approach seeks to demonstrate commitment from the public sector to produce a critical mass of deals and continuing stream of projects coming forward,” the document said.
However, since the SNP came to power and restated its opposition to PPP, the role of private finance in the hub has been much less clear. In the first months of the new administration, there was speculation that the scheme would be ditched altogether.
That notion was dispelled last July, when a letter was sent from the Scottish Government to the chief executives of all local authorities and NHS boards. While it stopped short of saying the hub would be implemented in full, it confirmed the Government was committed to taking the initiative to the next stage. All bodies interested in joining a pathfinder territory were invited to inform government. There was considerable enthusiasm: of 32 councils and 14 NHS boards, 40 expressed interest in being assessed.
A month later, the head of the Scottish Government’s private finance and capital unit acknowledged that it had been “some time” since he had been able to provide an update on the initiative, but said that the identification of possible pathfinders was now under way.
“During this time the focus of our efforts will be with public sector parties but we will fulfil existing commitments in our diaries to liaise with private sector interests, conferences, etc,” he said on the unit’s website. “Further engagement with market interests will take place as soon as possible after this work is completed and we look forward to further dialogue in the months ahead.”
Significantly, however, he stressed the hub would be a delivery vehicle, rather than a means in itself of raising finance. He described the hub as “a delivery initiative which offers a flexible, long-term approach to the development and procurement of community-based facilities through a local joint venture arrangement supported by a national delivery vehicle”. “Such flexibility will enable projects to be procured irrespective of the type of funding,” he said.
During the autumn, the process of selecting possible pathfinders got under way amid grumblings from local bodies over the complexity of the evaluation forms and tight deadlines imposed on them for getting not only strategic agreement with partners to the submission but, potentially, political sign-off.
By April this year, criticism was mounting over the SNP’s plans for infrastructure investment. The Government’s consultation on SFT drew doubtful responses not only from political opponents but from independent experts. The Chartered Institute of Public Finance and Accountancy pointed out the Government did not have the right to issue bonds. The Society of Local Authority Chief Executives and Senior Managers questioned whether SFT would provide cheaper financing than PFI. Both bodies queried how the hub fitted into the bigger picture.
In May, the Scottish Government announced the business case for the SFT at a conference at Heriot-Watt University. That announcement included a bullet point on ‘community hubs’, including primary and community care facilities. While Swinney unveiled plans to remove the elements of PFI that delivered the “most extreme” profits by putting non-profit distributing principles at the heart of partnership delivery and funding, the man at the top of the private finance and capital unit was left to explain the hub to an audience of project financiers, contractors and management consultants.
But if delegates came hoping to find out how the hub worked, they would have been disappointed, says Mark Hellowell, research fellow at the University of Edinburgh’s Centre for International Public Health Policy, who was in the crowd. “He didn’t even mention how to finance it, it was mostly about what it would deliver,” he says.
“That would have been appropriate for a different audience, a more general audience, but for that audience it was quite strange. People wanted to know how they could get involved in it. By not talking about the delivery mechanism, it was obvious he was trying to keep it quiet.”
Hellowell’s impression was that the issue was “very up in the air”. “By now, you would expect them to have a reasonable sense of what they want to do,” he says, but adds: “There is an obvious political imperative not to talk about what they’re planning because people will pick up on the inconsistency.”
Following the business case announcement, a hub programme office was established within the Scottish Government, and local bodies who wanted to participate in the pathfinders were asked to sign a letter of intent, which would, in turn, release funding for the initial setting-up of the hubs, including project management, procurement support and organisational development costs.
The Government had asked for the letters of intent to be signed by October 10 in readiness for Swinney’s announcement next month, but many bodies are understood to have missed that deadline. “There has not been a good response, and the Government needs sufficient numbers to give confidence to a ministerial announcement,” says a senior source within one of the potential hubs. “John Swinney won’t stand up and say no one has signed it
John Swinney won’t stand up and say no one has signed it 
.”
Uncertainty about how the hub will now work, and how it fits into the wider SFT model, has contributed to reluctance to sign on the dotted line. “40 out of 46 councils and health boards wanted to do it, but that was based on their understanding of the original model of the hub,” he says. Two years ago, the hub was presented as a vehicle both for raising capital and for delivery. Now that it appears to have shrunk into a delivery vehicle, hubs would be left to work out for themselves where the money will come from. “People are wanting to know how it fits into SFT, that is the million dollar question.”
The lack of buy-in at a local level suggests that the hub programme office has a big communications job still to do. The chief executive of one council says he remains in the dark about how the scheme would work – even though his authority is meant to be taking part in the first pathfinder. “The whole concept is still very vague – we don’t have enough information to know whether it would be of interest or not,” he says.
Until that much is clear, the hub will be another part of the Government’s SFT that raises more questions than it answers. The Scottish Government has refused to answer any questions on the scheme ahead of the ministerial announcement. For as long as that silence continues, doubts over the ideological framework that now underpins infrastructure investment in Scotland are certain to intensify.
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