£5 billion bill for taxpayers due to controversial PFI deals

Taxpayers are shelling out billions of pounds more than planned for schools, hospitals and other projects built through controversial deals with private companies, an investigation by JPIMedia can reveal.

Friday, 18th October 2019, 6:00 am
Taxpayers will end up forking out nearly £5bn more than the original PFI deals were worth

Extra costs and rocketing inflation are set to add nearly £5 billion to the overall price tag of Private Finance Initiative (PFI) schemes, according to figures obtained from hundreds of public bodies.

In Peterborough, a £60 million contract for works on three schools will cost taxpayers nearly double the amount in repayments, while the city hospital was left with crippling debts after opening in 2010.

The picture is even worse nationally as JPIMedia – which publishes the Peterborough Telegraph – can reveal that:

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Some of the expensive costs due to PFI

. Hospital bosses in the Portsmouth North constituency will pay out an extra £700 million for a hospital expansion scheme signed under the Labour government in 2005;

. An NHS maternity unit built and run by a private company was closed after just 16 years, but is still costing the taxpayer millions of pounds;

. A police force in the South East is trying to think up new uses for a mothballed custody suite it is still paying for;

. Expensive maintenance contracts have seen one police force billed £884 for an extra chair.

With some PFI schemes set to continue into the 2040s, trade union leaders and public sector campaigners have called for urgent action.

Unite assistant general secretary Gail Cartmail said the “ever-escalating costs” of PFI are a “national scandal”.

She said: “The money that has poured into the pockets of profit-hungry financial institutions and private companies could have been much better spent directly on public service projects and infrastructure. PFIs are a rip-roaring example of out-of-control ‘bandit capitalism’.”

Many of the deals struck with the private sector in the late 1990s and early 2000s to replace crumbling buildings were pegged to the retail price index (RPI), the now-discredited high measure of inflation still used to calculate rail fare hikes and student loan interest payments.

This has risen faster than many councils, police forces or NHS trusts had planned for, lumbering them with ever-bigger payments at a time when they have seen their own budgets squeezed.

Alterations to buildings or services have also seen authorities hit with unforeseen costs.

Joel Benjamin, the co-founder of The People versus PFI, a campaign group calling for an end to the “institutionalised theft” of PFI debt, said the rising bill highlights how the scheme is a: “shocking waste of public money”.

The contracts were first introduced by John Major’s Conservative government in the 1990s but were significantly expanded under Tony Blair’s Labour.

The annual cost of PFI deals has this year hit £10 billion – equivalent to a tax of more than £150 on every person in the UK.

The Government’s oversight of PFI was heavily criticised by MPs and trade unions after the spectacular collapse of outsourcer Carillion, which the National Audit Office estimates is set to cost taxpayers £150 million.

The Shadow Chancellor John McDonnell has said a new Labour government will end PFI and bring financing schemes “in house”.

Labour said the cost of schools and hospitals has “ballooned” under PFI.

In setting out his post-Brexit investment plans at the Conservative conference last month, the Chancellor Sajid Javid said he would “bring in an infrastructure revolution” and invest an extra £13.4 billion into public services.

His predecessor Philip Hammond abolished the PFI model in the wake of the Carillion collapse.

The Treasury said it was supporting health authorities to manage the costs of old PFI deals.

A spokeswoman said: “As announced in last year’s Budget, we will no longer be using PFI and PF2 funding for new government projects.”

What is PFI?

While they may look like any other hospital, school or police station, many public sector buildings across the country are, in fact, owned and run by private companies.

The Private Finance Initiative (PFI) works in a similar way to a phone contract – authorities get their hands on shiny new buildings upfront and will usually get to own them outright at the end of their contracts.

The deals often last for 25 or 30 years, with payments also covering services such as cleaning and maintenance.

PFI began under John Major’s Conservatives in the early 1990s but proliferated during the New Labour years. It continued under the Tories before then-Chancellor Philip Hammond put a stop to it last year.

But when contracts were signed the cost of annual bills was often linked to the now-discredited Retail Price Index measure of inflation, meaning many annual payments have been rising steeply while public sector budgets were being squeezed.