THE PRIVATE Finance Initiative (PFI) and its twin Public Private Partnerships (PPP) were products of the great credit binge of the 1990s. Like the off-balance-sheet scams used by the banks to conceal their irresponsible lending, PFI was an off -balance-sheet scam to conceal public borrowing.

The City suits told naive politicians that, instead of paying for schools and hospitals through government borrowing and taxation, they could go PFI and not have to spend anything at all upfront. Instead of the public owning the school, the private sector would and would rent it back to the government. The capital cost would be rolled up in the annual service charges over the 30-year life of the contract, so that it didn't have to figure on the government capital accounts. This helped Labour meet their "sustainable investment" rule of keeping borrowing below 40% of GDP.

But you get nowt for nowt. A decade down the line, the true cost of this fancy financial engineering is finally emerging. The windfall profits made by PFI firms made even the Tory chairman of the Commons Public Accounts Committee, Edward Leigh, complain about "the unacceptable face of capitalism". Politicians just wanted to get the hospitals - such as the ERI in Edinburgh - built as quickly as possible. They weren't interested in what happened three decades down the line.

The clever accountants who drew up the PFI contracts were able to run rings round civil servants. The Office of Fair Trading is currently investigating the way some construction companies connived at increasing costs. But the real drawback of PFI was the cost of the finance. It is just more expensive to raise money on the private finance markets than it is to raise it through taxation or conventional public borrowing.

The SNP are committed to scrapping PFI and setting up a Scottish Futures Trust, which would issue bonds to raise money. This is how cities and port authorities in America raise their funds and is far cheaper than PFI. Unfortunately, the Scottish parliament does not have the power to issue bonds. This has left Alex Salmond with the problem of how to pay for his ambitious school-building programme, let alone new prisons and bridges.

The Nationalists have come up with a compromise solution: PFI without the private profit. The trust will set up a not-for-profit company which will raise money on the private markets much as PFI does. But the profits will not go to PFI operators, but to the public purse.

Seems a sensible stop gap, but there are problems. The trust may not be able to raise the funds as easily as private operators, and adding bureaucracy might lead to delay and cock ups. The SNP don't want another Scottish parliament building on their hands. Part of the attraction of PFI is its very lack of transparency. Now, everything will be open and above board.

But there is a bigger problem. The UK government has finally agreed to adopt the International Financial Reporting Standards (IFRS) from this year as applied throughout Europe. IFRS basically requires the government to fess up, and put PFI/PPP (public private partnership) projects back on their books where they always should have been.It will bring honesty to public procurement, which is a good thing. But it might also scupper the non-profit PFI of the Scottish Futures Trust because it is an off-balance-sheet vehicle too.

The SNP will say: "Well, we did our best". If you want rid of PFI then the Scottish government should be allowed to raise its own debt. Whether this is possible short of independence is an interesting question, to which the SNP have their own answer.