plugholeI’ve not really had a chance to read the various manifestos that have been festooned upon the masses amid as much pomp, ceremony, media attention and balloons as the parties can muster. I gather Labour’s launch today was hit by a smoke alarm going off, rumours of someone’s ‘pants on fire’ are, as yet, unfounded.

The Lib Dems have pinned much of their election hopes on cash that could be raised from Scottish Water. Money may not grow on trees (as the SNP learned when considering selling off forests) but it might fall out of pipes.

Now, I’m going to try to give this idea the fairest crack of the whip possible, if only to avoid Douglas MacLellan tracking me down and, probably quite fairly, lamping me for being unduly harsh on the Scottish Lib Dems.

So, first of the positives is simply this: it is a relatively new idea. Labour has aped much of the SNP’s policies depriving the electorate of real choice. This suggestion from the Lib Dems provides real choice and is a juicy contribution to the campaign at large.

Second positive is that it is the type of dynamic, ‘outside the box’ solution that Scotland needs to get through this difficult financial period. We don’t have borrowing powers, we don’t have the tax-varying option (yet) and we don’t have an ever-increasing budget. The Tesco Tax has been rebuffed and the parties are circling around Council Tax, sniffing out its potential to close some funding gaps. What else do we have? Well, Scottish Water seems to be right up there as a cash cow so it’s asking to be explored.

Another positive is that companies do this all the time, selling debt on here, factoring debtors there. Who do you think holds your mortage debt? You might want to guess again. The practice has become part and parcel of running an efficient cashflow and if the benefits of early money can exceed the negatives of foregone inflows further into the future, then the approach is worthwhile.

This, to me, is where the Lib Dem plan starts to move into disagreeable PFI territory. Short term gain for long term pain, but I haven’t seen enough detail to make a fair comparison and the little that I can find is maddeningly light on what is actually being proposed. As far as I can make out, the sale of the Scottish Water debt would be covered by a bond issuance (private investors paying cash for guaranteed income over a set period of time) and the difference between the bonds and the debt is £1.5bn. How reliably this is arrived at seems to be anyone’s guess. Certainly my experience (from my current job, in Corporate Finance) is that refinancing is pushing the price of loans up, not down.

So this is neither positive nor negative but…. more detail is desperately required regarding what is being proposed here.

Now, the potential negatives. First up, the proposal states that Scottish Water would be a ‘public benefit corporation’. What does that mean? It sounds nice and fluffy but what sort of public benefit can be left once the debts have been flogged off? My initial suspicion is that there would be a private element to this venture.

Well, thanks to Wikipedia, the best example of an existing pbc are certain NHS Foundation Trusts and the BBC, in all but name at least. That sounds reasonable to me and not so far removed from its current status so a tentative crossing out goes against that worry.

My main concern is that the cost of water in Scotland would increase signifcantly over time in order to satisfy the cost of the private investment (bonds). Caveating the following given my only partial understanding of the proposal, but if you pull out £1.5bn from Scottish Water then you will inevitably have to put it back in at some later date, regardless of what the small print or technical detail says. That is just basic accounting and finance, surely. The Lib Dem proposal is to spend this £1.5bn of money on setting up regional banks (£500m), early intervention (£250m), energy saving (£250m), digital economy (£250m) and a “science nation fund” (£250m). All great ideas, (well, depending on what exactly the “science nation fund” is I suppose) but this cannot be ‘free money’ and it’s important to remember that. This is a cash advance, at a discount, from private investors, and the Effective Interest Rate has to be clear before we embark on this venture, or vote on it for that matter.

Another concern is the fact that the UK Treasury has not looked through the detail of this proposal and there is no guarantee that the amounts raised wouldn’t be simply creamed off the block grant, completely undermining the point of the whole venture.

In short, selling Scottish Water’s debt sounds like an idea that is worthy of further exploration and analysis as the gain may well exceed the pain but the conservative side of me naturally bristles against cashing in on long term considerations for short term benefit and it all just seems a bit too much too soon to be taken too seriously. If only the Lib Dems had checked it out with the Treasury first, it’d seem more plausible.

So, for me, the assumption has to be that this won’t work, certainly not at least until the Lib Dems are able to spell out the detail more clearly.

And they only have four weeks.