Seven Principles of Public Life: time to rethink

This article considers the possibilities for widespread use of municipal bonds to finance public sector infrastructure, with particular reference to Scotland. Provided the various control measures recommended in this article are in place, there can be few objections either in principle or practice and they would be a highly desirable secure form of debt, so helping ease the current credit crunch.     

Structural Change in the Scottish Labour Market, the Tax Take and the New Parliament's Income Tax-varying Powers

This article examines the implications of increased labour market flexibility, in the form of part-time work, for the Scottish public finances in the context of devolution and the establishment of a Scottish Parliament with income tax-varying powers. The income tax contributions of different Scottish household types are calculated using a spreadsheet-based model. The findings show that any trend towards part-time, rather than full-time, employment could seriously erode the country's total income tax take and reduce the effectiveness of the tax-varying powers to provide a source of additional revenue for the Scottish Parliament.     

Accounting, regulation and profitability: The case of PFI hospital refinancing

The refinancing of PFI (Private Finance Initiative) projects represents one of the most contentious aspects of Public Private Partnerships (PPPs) in the UK. The negative publicity associated with UK PFI refinancing deals is associated with several factors, including, evidence of massive private sector profit making, the failure of private sector financiers to share refinancing profits and, lastly, private sector frustration of adequate regulatory intervention in this area. Utilising a dynamic model of capital market and state interaction, this paper explains these outcomes as a function of effective private sector lobbying of bureaucratic state agencies to alter the structure of accounting, accountability and regulation with the goal of securing favourable profit and risk outcomes. These dynamics are illustrated with reference to the history of UK PFI refinancing and a case study of one of the projects where these gains reached extreme levels.     

Crucial silences: When accountability met PFI and finance capital

During recent years, a wide spectrum of research has questioned whether public services/infrastructure procurement through private finance, as exemplified by the UK Private Finance Initiative (PFI), meets minimum standards of democratic accountability. While broadly agreeing with some of these arguments, this paper suggests that this debate is flawed on two grounds. Firstly, PFI is not about effective procurement, or even about a pragmatic choice of procurement mechanisms which can potentially compromise public involvement and input; rather it is about a process where the state creates new profit opportunities at a time when the international financial system is increasingly lacking in safe investment opportunities. Secondly, because of its primary function as investment opportunity, PFI, by its very nature, prioritises the risk-return criteria of private finance over the needs of the public sector client and its stakeholders. Using two case studies of recent PFI projects, the paper illustrates some of the mechanisms through which finance capital exercises control over the PFI procurement process. The paper concludes that recent proposals aimed at “reforming” or “democratising” PFI fail to recognise the objective constraints which this type of state-finance capital nexus imposes on political process.     

Risk management challenges of shared public services: a comparative analysis of Scotland and Finland

This paper analyses the risk management challenges of shared service provision in Scotland and Finland. Policy context and institutional frameworks largely determine the local choice of organizational arrangements and so the risks that arise and the way they are shared. Finnish municipalities have developed joint municipal arrangements for sharing services, whereas Scotland's shared service challenges are related to the historical separation of health and social care services and the search for cost savings while improving service effectiveness.     

On the price of risk in a mean-risk optimization model

We investigate a mean-risk model for portfolio optimization where the risk quantifier is selected as a semi-deviation or as a standard deviation of the portfolio return. We analyse the existence of solutions to the problem under general assumptions. When the short positions are not constrained, we establish a lower bound on the cost of risk associated with optimizing the mean–standard deviation model and show that optimal solutions do not exist for any positive price of risk which is smaller than that bound. If the investment allocations are constrained, then we obtain a lower bound on the price of risk in terms of the shadow prices of said constraints and the data of the problem. A Value-at-Risk constraint in the model implies an upper bound on the price of risk for all feasible portfolios. Furthermore, we provide conditions under which using this upper bound as the cost of risk parameter in the model provides a non-dominated optimal portfolio with respect to the second-order stochastic dominance. Additionally, we study the relationship between minimizing the mean–standard deviation objective and maximizing the coefficient of variation and show that both problems are equivalent when the upper bound is used as the cost of risk. Additional relations between the Value-at-Risk constraint and the coefficient of variation are discussed as well. We illustrate the results numerically.     

Public sector risk managers and spending cuts: mitigating risks

This paper reports case study research, the results of which are used to consider whether councils have recognised the potentially substantially increased social risks they may create as they seek to reduce their spending in line with the UK Government’s programme of public sector austerity. It discusses the conceptual shift in the public sector risk management literature towards social risk management (SRM), presents empirical evidence of social risks and considers the approach to SRM developed by other organisations. It finds no evidence of SRM within the case study authorities and so advocates a shift in the public sector risk management culture from a preoccupation with defensive-institutional risk management practices to a more proactive social dimension. In so doing, it discusses the goals of SRM, the constraints limiting their achievement, metrics for measuring social risk, tools for mitigating social risk and the problems faced when operationalising SRM.     

Occupation,driving experience,and risk and accident perception

The contemporary understanding of public sector risk management entails a broadening of the traditional bureaucratic approach to risk beyond the boundaries of purely financial risks. However, evidence suggests that in reality public sector risk management does not always match the rhetoric. This paper focuses on the apparent inadequacy of any risk framework in the current Prudential Borrowing Framework (PBF) guidance in relation to that which was developed under Public Private Partnerships and Private Finance Initiative (PFI). Our analysis shows that the PBF and its associated indicators for local authorities adopt a narrow financial approach and fail to account for the full range of potential risks associated with capital projects. The PBF does not provide a framework for local authorities to consider long‐term risk and fails to encourage understanding of the generic nature of risk. The introduction of the PBF appears to represent a retrograde step from PPP/PFI as regards risk and risk management.     

An innovative approach to risk and quality assessment in the regulation of care services in Scotland

The Scottish Government’s social care regulator, the Care Commission, seeks continual improvement in the quality of social care services. Its approach has been to establish a modern risk-based regulatory regime using separate measures of risk and quality. We evaluate this twin approach, firstly, in relation to the literature on predictors of poor service quality in care delivery; and, secondly, by interviewing a sample of Care Commission inspectors. We conclude that this system has important advantages, both in terms of regulatory transparency and the need for inspectors to remain sensitive to the separateness of risk and quality issues. Future revisions of risk and quality assessment within social care services, both in Scotland and further afield, should seek to minimise misunderstanding and conflict between regulators and regulatees on closely interrelated matters of risk, quality and efficiency.     

The UK Financial Sector and Risk Management in PFI Projects: A Survey

In PFI transactions the private companies which take on the obligation to build and manage a facility usually provide only a small fraction of the project's capital requirements. Most of the capital is borrowed from banks and other financial institutions. This poses challenges to financial services providers which often have to retain untypical residual project risks. This article describes the types of risks faced by financial services providers and the strategies they use to cope with these risks. Given the often politically-sensitive nature of PFI projects, the authors suggest that financial institutions should investigate a broader set of parameters than they do at present, which relate directly to the political economy of PFI projects.