The Weekly paper of the New Communist Party of Britain
Week commencing 26th January 2018

PFI costs through the roof

LABOUR MP Meg Hiller, who chairs the Parliamentary Public Accounts Committee, last week issued an attack on the Government’s continuing use of Private Finance Initiative (PFI) deals following a report from the National Audit Office (NAO) predicting that taxpayers will have to pay at least £200 billion over the next 25 years under existing PFI contracts.

The NAO report found that using PFI money to finance public projects can be up to 40 per cent more expensive than using public money. PFI schemes were introduced in the 1990s under the Tory government of John Major but Tony Blair’s Labour government from 1997 onwards promoted the schemes widely.

Major finance and construction companies got together in consortia to form PFI contracts. Details of the deals with national and local government were kept secret from the public on grounds of commercial confidentiality. So, the public never got to know just how much of the ownership and control of their schools, hospitals and other vital facilities were being transferred into private hands.

The deals were very generous to the PFI consortia in terms of insurance should anything go wrong with the project. For the consortia it was a cast iron guarantee of vast profits. The pay-back period was generally around 20 to 30 years.

The unions, left Labour and progressive organisations fiercely opposed PFI schemes that enabled public building and renovation projects to go ahead because it was obvious that the long-term costs to the public would be astronomical. And so it has proved to be.

The collapse of the giant company Carillion, which is involved in many PFI contracts, has drawn attention to the drain on public money. The Government has a £2.6 million equity stake in one of Carillion’s major projects — public money that is now at risk.

Currently there are 716 operational PFI deals with a capital value of around £60 billion, according to the NAO report. Annual charges for these deals amounted to £10.3 billion in 2016—17. Even if no new deals are entered into, future charges that continue until the 2040s amount to £199 billion — money that could finance the entire NHS for 20 months.

little evidence

Meg Hillier commented on the NAO report: “After 25 years of PFI, there is still little evidence that it delivers enough benefit to offset the additional costs of borrowing money privately.

“Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change.

“I am concerned that the Treasury has relaunched PFI under new branding, without doing anything about most of its underlying problems. We need more investment in our schools and hospitals but if we get the contracts wrong, taxpayers pay the price.”

The NAO report examined PFI deals drawn up over 25 years under Tory and Labour governments, as well PF2, introduced as improved public—private financing deals set up under David Cameron’s premiership.

An analysis of costs for building one group of schools “found costs are around 40 per cent higher than the costs of a project financed by government borrowing,” auditors said.

Under PF2, the government will gain a smaller proportion of profit if deals are refinanced — a cut from 50 per cent of gains to 33 per cent — which could cost taxpayers millions of pounds.

This was done, the report said, to keep PF2 projects off the balance sheet. “HM treasury acknowledges that these changes could have a moderate negative impact on [value for money],” the report said.The report examined six PF2 deals to finance schools and hospitals. It disclosed that the then chancellor George Osborne considered bringing historic PFI debt onto the government’s books in 2012, but rejected this, partly because of a risk to Britain’s AAA credit rating. Months later, Britain’s rating was downgraded to AA1 following an economic slump.

Research by auditors found that private investors who charge public bodies for insurance on each project, have not passed on 15 years of lower insurance costs.

“Public bodies are paying more for insurance than the actual cost, providing a gain to [private] investors,” the report said.

Jeremy Corbyn said: “These corporations need to be shown the door. We need our public services provided by public employees with a public service ethos and a strong public oversight.”