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Private cash for schools ruled out

The Scottish Office appeared to acknowledge this week that the use of private capital for some school projects in the Western Isles is a non-starter. Although officials played down the significance of a letter sent to the council, the admission of defeat over the applicability of the Government's prized private finance initiative to educational projects is a serious blow.

The Western Isles Council had submitted a scheme to replace four primaries and a two-year secondary with a new school in the Lochs area of Lewis, costing between Pounds 2.7 million and Pounds 5.8 million depending on the mix of primary, secondary and community facilities.

An exhaustive feasibility study lasting four to five months, including talks with the Scottish Office's private finance unit and contractors, led the council to conclude that the project would not be affordable or give value for money. It would cost more than Pounds 500,000 in annual revenue to an operator in return for facilities owned, designed, built and financed by the private sector.

The Scottish Office Education and Industry Department has now accepted this "disappointing conclusion." A letter to the council goes on to commend the authority on its "positive approach in pursuing and clarifying the PFI potential for schools in the area".

The letter implies that the Scottish Office PFI unit does not expect other viable projects to be found in education. The crucial sentence reads: "They [the unit] hope that it will be possible to secure an economically sound PFI project in another service area, such as residential care."

The Western Isles was also investigating other community schools in the Point and West Side areas of Lewis to replace five primaries and a two-year secondary at a total cost, together with the Lochs project, of Pounds 15 million. This would have added up to Pounds 1.7 million to the council's revenue bill each year in payments to the private sector.

David O'Loan, the Western Isles's depute director of finance, said the Scottish Office was ruling out private finance for area schools "which is all we have in the pipeline". The three Lewis schemes would mean 10 schools coming on the market but a crucial problem was low land values, which the council says would not be enough to attract private developers.

Mr O'Loan said he would hesitate to apply any lessons to the rest of Scotland, a point reinforced by the SOEID. "This is one set of circumstances and one project with no implications for other island or rural areas," a spokeswoman said.

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