Call for review of payment-by-results funding model

A "payment-by-results" Scottish government investment scheme has paid out despite projects missing their targets.

The Growth Accelerator Model (GAM) was used to help fund Dundee's waterfront redevelopment and the St James shopping centre in Edinburgh.

Under GAM, local councils fund some of the work up front and Scottish ministers pay them back.

But only if the flagship schemes hit economic targets such as creating jobs.

Documents released under freedom of information laws show both the Dundee and Edinburgh projects have missed some of their targets - including increasing the amount of business rates collected - but payments were made anyway.

One of the targets in Dundee has now been changed and Edinburgh City Council has asked for some of its deal's targets to be downgraded in order to help it secure future government payments.

The Scottish Futures Trust, a Scottish government agency which manages the GAM programme, insisted it was a "viable funding model" and the pay-outs were approved as a result of the impact of the Covid pandemic.

But the Lib Dems have called for a "comprehensive and thorough review" of the projects' funding model.

The party's economy spokesman Willie Rennie said: "If the only way that you can hit the targets set out in your funding model is to adjust the criteria after the fact, it rather suggests that either your model isn't very good or that planners were consistently overzealous about the benefits these projects would bring."

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The SFT describes GAM as a "payment-by-results model with grant income paid when pre-agreed measures are achieved".

In 2016, it was announced GAM was to be used for a £63.8m of funding towards the redevelopment of Dundee's waterfront, including the V&A design museum.

One target the project had was employing 100 people who live in Dundee's most deprived areas by March, 2020.

The cumulative tally by March, 2021 was 38.28 full time equivalent (FTE) posts filled by people from these areas, but Scottish ministers agreed to pay out on this target because of the impact of Covid.

The cumulative jobs total is now 101.

In addition, a deal was struck to scrap the project's target of increasing the area's rateable values with a new target of reducing the number of vacant commercial properties.

St James Quarter, at the east end of Princes Street in Edinburgh, replaced the 1960s St James Centre and the New St Andrews House office block

In Edinburgh, the local council paid £61.4m towards the infrastructure costs of the privately funded £1bn St James Quarter development.

The deal signed with Scottish ministers meant the council would get £4.2m a year for 25 years if it increased the amount of business rates generated in the flagship development and surrounding areas.

Scottish ministers agreed to make the payment in 2021/22 regardless of this target being missed because of the impact of Covid.

However, the council has now also asked the Scottish government to reduce the baseline rateable value figure for this target by 30%, and to exclude some postcodes from the target about boosting economic activity in the surrounding areas.

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Peter Reekie, chief executive of the Scottish Futures Trust, said GAM meant £1.2bn of inward investment had been "unlocked" in Dundee and Edinburgh and both projects are supporting hundreds of jobs in the retail and hospitality sectors.

He added: "In light of the pandemic, changes to the funding mechanism were agreed for both projects and both are now contributing strongly to the economic recovery of their respective city-centre locations and Scotland more generally."

'Exceptional circumstances'

The GAM model is also being used to finance a new £49m deep water terminal being built in Stornoway and is also lined up for £200m of future Scottish government Green energy projects.

A Dundee City Council spokesman said the GAM provided "essential funding" to help transform the city's waterfront and that "good progress" is being made towards achievement of the deal's performance targets after the "exceptional circumstances" of the Covid pandemic.

A spokeswoman for the City of Edinburgh Council said its £4.27m payment for 2021-22 reflected the "exceptional circumstances that affected the ability to achieve the previously agreed GAM targets".

She added the council is to hold further discussions with the Scottish government about changes to the targets.