Scotland’s alternative to PFI is challenged by the EU rules

The Scottish alternative to PFI, Non Profit Distributing or NPD, seems to have fallen foul of EU rules.  Today’s Guardian reports that the intervention of the Office for National Statistics will force the Scottish Government to reclassify a large number of publicly funded schemes as being in the private sector, and consequently require the Scottish Government to refinance the schemes using private money.

The rules are complex, and  I don’t claim any specialist knowledge in this field, but this is not about the way official statistics are kept: it’s a matter of substance.  There are two main classes of rules which might apply,  The first set of restrictions relates to public procurement: state intervention is not supposed to affect the level playing field between competing firms.  This is impossible to realise, because of course any public procurement will do that, and PFI in England might reasonably be considered to have favoured a specific class of large firm with specific UK experience.   Hellowell and Pollock have expressed scepticism that the NPD model is much better.  The second set of rules, which is more pertinent in the current situation, relates to the ability of public organisations to run a deficit.  The EU has a process, the Excessive Deficit Procedure,  to curb the level of the public deficit.  This is enforced within the Eurozone by Stability Programmes, and outwith the Eurozone by Convergence Programmes.  The UK is subject to a Convergence Programme, backed by sanctions, which commits it to reducing its deficit to 3% of GDP.  It happens that the programme demanded by the EU seems to coincide fairly closely with the aspirations of the current Conservative government, which might explain why the UK hasn’t been complaining vociferously about the restrictions.

There are grounds to challenge whether these rules are appropriate.  In macro-economic terms, the distinction that’s being made between public and private debt is pretty much meaningless, and shifting public debt off-book to the private sector does nothing to reduce the impact of debt in reality.   In terms of maintaining a competitive market, the idea that public procurement doesn’t affect the balance of activity between firms is absurd, and unattainable.   The very existence of a procurement programme changes the game.  The size of the commissions, the permissions to undertake economic activity, and any transfer of financial benefits from public to private (or vice versa) affect the fortunes of specific enterprises and market sectors.   If the government is serious about renegotiating how Europe works, public procurement might be a good place to start.

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