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CAPITAL RULES LOOSENED TO ENCOURAGE PFI SCHEMES

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The Scottish Office is to remove two major obstacles to private finance initiative schemes, local government minist...
The Scottish Office is to remove two major obstacles to private finance initiative schemes, local government minister George Kynoch told the conference on Friday.

The move is in response to pressure from finance officials in Scotland and will bring councils in line with the rules in England and Wales

Under the proposed changes, councils will be able to keep the full value of any capital receipts from property transferred as part of PFI deals and will treat charges for PFI projects in the same way as council loan charges for standard capital projects. The latter will mean charges will be disregarded for capping purposes and will be able to attract grant.

'Our objective here is to ensure that there is no disincentive to use the PFI for deals which give you value for money,' said Mr Kynoch.

He said a notional capital charge for PFI projects would have to be calculated as a basis for providing grant in the same way as conventional loan charges. This figure could also be used to calculate the amount which should be excluded from budgets for capping purposes.

Mr Kynoch warned that the recently announced review of the formula for calculating grant-aided expenditure was unlikely to be implemented until 1998-99.

He said there would be no 'quick fix'. 'There are formidable questions to be addressed about such matters as access to reliable data,' he told delegates.

Mr Kynoch also took the opportunity to dismiss allegations that the new local government structure had been implemented with a lack of resources, creating a funding crisis. 'I do not accept that the problems which councils have faced this year are the result of a poor local government settlement,' said Mr Kynoch. 'Nor do I accept that reorganisation, of itself, is the cause of the problems.'

He said councils' spending had been increased by £186 million or 3.6% and blamed the outgoing authorities for the crisis. 'They've been spending at levels far in excess of those which they could afford. Their expenditure has been substantially higher than their income and they have funded the difference by running down their balances,' he said.

A lack of balances held by the new councils had brought an average increase in council tax bills of 13% and led to calls to increase budgets by over 10%.

Mr Kynoch also urged the new authorities to 'abolish past bad practice'.

'Servicing of the taxpayer, as efficiently and cheaply as possible, is the sole raison d'etre of local government,' he said.

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