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2. Introduction
2.1. Background
The current Administration had as part of its pre-election manifesto a conceptual idea called the Scottish Futures Trust ( SFT). This was a concept founded on various objectives, but primarily its aim was more efficient public infrastructure investment.
The original concept was that SFT would deliver more efficient public infrastructure investment by:
- Providing a more cost effective source of capital investment, securing best cost of project/programme funding, relying on public bonds issuance, using the PFI/ PPP model as a benchmark;
- Creation of a trust entity that could hold public assets, concentrating SFTs function in a single body, thus supporting efficiency and scope for aggregation.
However, the original concept papers noted that although borrowing could happen at the UK national and Local Authority levels, it was not possible at the Scottish Government level. Currently this remains a constraint on SFT's activities, therefore in this document SFT's activities are anticipated as evolving over time, following a development path.
2.2. Developing the Original Concept
Following the elections in May 2007, in July 2007 a small working group was formed comprising Scottish Government ( SG) officials, a political adviser, and Partnerships UK ( PUK). The task of the working group was to look at the SFT concept and consider how best it might be developed towards successful implementation.
In order to take this forward a number of tasks were undertaken, including research on the long term cost of debt 6 and consideration of wider contextual issues such as the possible impact on SFT of anticipated changes to the applicable accounting standards.
In October 2007 more structured governance was put in place to support the development of SFT. A Steering Group was formed reporting directly to the Cabinet Secretary for Finance and Sustainable Growth, chaired by Dr Andrew Goudie, Chief Economic Adviser , with membership drawn from senior ranks of SG, PUK, a political advisor, and the Council of Economic Advisers. In December 2007 a small SFT Strategic Business Case delivery team was formed, led by PUK, with specialist financial support provided by PricewaterhouseCoopers ( PWC).
The brief for the delivery team was to produce a draft Strategic Business Case ( SBC) for the SFT by the end of March 2008.
2.3. Consultation
In parallel to the establishment of the Delivery Team the Scottish Government issued a consultation paper on possible SFT activities, form and governance on the 20 December 2007.
The consultation paper set out the principal aims of SFT as:
- a channel for public and private capital into infrastructure investment programmes and projects;
- as providing other services such as investment planning, project delivery, and asset management.
The consultation period ended on the 14 March 2007 with 89 responses received.
This SBC has taken cognisance of the responses made in the consultation period, in particular a general welcome for the recognition of the importance of investing in Scotland's infrastructure, views on sourcing and application of finance, and the role of existing organisations.
2.4. Concept to a Proposal
Taking due note of the consultation responses, the purpose of this SBC, and the process undertaken to produce it, has been to take the original conceptual framework of SFT, establish the constraints and parameters impacting on it, and develop a proposal for SFT that is relevant, credible and viable.
This process was initiated by the delivery team examining the strategic aims of SFT, and its priority objectives, as captured in the early conceptual statements and the consultation paper. For the purposes of taking forward the SBC, these priorities were agreed by the SFT Steering Group, and are as follows.
The SFTSBC should (under the overarching aspiration of more efficient delivery of infrastructure):
1) Explore ways in which to deliver new and additional funding for public sector infrastructure;
2) Explore ways in which to deliver on-balance sheet efficiencies, including any potential to "re-use" and release value from existing funding and investment;
3) Explore ways in which to bring about more efficient delivery, and therefore use of infrastructure funding (through provision of a focal point for market interests, strategic investment planning, value for money aggregation, focused use of expertise, use of innovative delivery structures and procurement models).
This helped give some clarity and structure to the key areas of work to be undertaken in the production of the SBC. It also highlighted that SFT was unlikely to be about a single point solution, rather it pointed to there being the potential for an even greater raft of ideas that might underpin a wider initiative aimed at more efficient infrastructure delivery.
2.5. Option Evaluation
Having clarified the strategic objectives for this SBC the next step for the delivery team was to identify the various component parts of SFT activity that could assist in delivering the strategic objectives, and then filter those individual concepts in order to establish a core set of deliverable SFT activities. It was agreed by the Steering Group that there could be two positive outcomes from this process:
i) The option is possible and adds value;
ii) The option is not possible currently, but were (vires) constitutional arrangements to alter in the future, it would add value;
The primary filters of all the conceptual ideas generated were set as the highest level risks identified by the delivery team:
- Vires;
- EU Procurement;
- State Aid;
- Accounting treatment;
- ONS Classification.
Where it was judged that the individual concepts could pass the primary filters they were then tested and ranked against a secondary set of filters, essentially an assessment of potential for quantitative and qualitative added value, and sector applicability.
Part of the quantitative input to this evaluation process was the estimate of future infrastructure investment required in Scotland over a 10 and 15 year horizon. (The build-up of these figures is explained in chapter 4, Assessment of Infrastructure Need.)
The output from this evaluation process was a shortlist of 14 potential SFT activities.
The option evaluation methodology is covered in more detail in chapter 6.
2.6. SFT Form
These shortlisted individual concepts/activities were then brought together, scenario tested and SFT as a whole "reassembled". This provided the basis for examination of organisational structuring, as well as giving a basis for an overall analysis of the possible added value of SFT as an initiative (although it was recognised from the outset that this could only be confirmed through production of a detailed business plan).
The possible implications of differential taxation positions were taken into account throughout this exercise, however more detailed and specialist tax analysis will still require to be undertaken as part of the ongoing development and business planning phase for SFT.
The implication of VAT and direct taxation will be carefully considered as part of the establishment of the SFT entity and as the activities and form of SFT are refined.
In developing the organisational structure it was also regarded as important that SFT could develop and respond to changing circumstances in the future, and so any drawing of tight boundaries too early was avoided.
The delivery team also considered relevant precedents, and reviewed governance and corporate structuring information from a range of organisations that appeared to have efficient infrastructure delivery objectives, or other characteristics, similar to those of SFT, these included:
- Canadian Council for Public-Private Partnerships
- Kenniscentrum (Netherlands);
- National Development Finance Agency (Ireland);
- Partnerships Victoria (Australia);
- Partnerships UK;
- Strategic Investment Board (Northern Ireland);
An indicative organisational structure for SFT, and related governance arrangements, are set out and explained in Chapter 7.
2.7. The Delivery Landscape
The establishment of SFT will place a new organisation into an existing public sector infrastructure delivery landscape. The SBC delivery team has attempted to map this landscape, as shown in figure 3 below. This illustrates not only the complexity of the delivery landscape but also highlights the need there will be for SFT to offer opportunities for streamlining through building of alliances, interface management, or in some cases where there may be scope for rationalisation where there is overlap between SFT and existing bodies. This is further explored in chapter 7.
Figure 2. The Current Infrastructure Planning and Delivery Landscape
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