SCOTTISH Labour leadership candidate Neil Findlay MSP announced radical plans yesterday to wipe out the public-sector debt created by dodgy privateering deals which would return £12 billion to front-line services.

The measures would end the huge financial burdens placed on local authorities, NHS boards and other public-sector bodies from private finance initiative (PFI) and non-profit distribution (NPD) debts, he said.

Mr Findlay said that through buying back and refinancing the entire Scottish PFI and NPD debt - currently standing at around £35.3bn - he could save more than £12bn over the lifetime of the contracts.

This would be achieved by combining new borrowing powers as outlined by the Smith Commission last week and using them to exploit the unprecedented low interest rates on the international gilts market, he said.

Mr Findlay promised to immediately bring forward a Bill for the creation of a debt disposal department to raise the funds required as well as leading on negotiations with firms that presently hold the contracts.

"In some cases we are paying double-digit interest rates on some existing PFI projects while at the same time interest rates on the money markets are at a record low," he said.

It would be "politically negligent and financially irresponsible" not to take advantage of low interest rates, he said, adding that the money would "go into services, not offshore bank accounts of hedge funds that now own most of the PFI contracts."

Public-sector union Unison welcomed the pledge.

Scottish secretary Mike Kirby said: "Anything which reduces the overall cost to the public purse is to be welcomed.

"By using the new borrowing powers and the lower interest rate we have the opportunity to renegotiate the current debt and it might also be possible to renegotiate some of the contracts providing the opportunity to bring some services back in house."

Health Emergency campaign director John Lister was less enthusiastic however, saying the core of the problem was that "the private sector still pockets the profits" of any savings.

Rather than buying out the debt, he argued, there should be a forcible renegotiation of the deals.