Crippling PFI deals leave Britain £222bn in debt

Exclusive: Treasury data analysis unearths the 'enormous financial disaster' of Private Finance Initiatives

 

 

 

 

 

Every man, woman and child in Britain is more than £3,400 in debt – without knowing it and without borrowing a single penny – thanks to the proliferation of controversial deals used to pay for infrastructure such as schools and hospitals.

The UK owes more than £222bn to banks and businesses as a result of Private Finance Initiatives (PFIs) – “buy now, pay later” agreements between the government and private companies on major projects. The startling figure – described by experts as a “financial disaster” – has been calculated as part of an Independent on Sunday analysis of Treasury data on more than 720 PFIs. The analysis has been verified by the National Audit Office (NAO).

The headline debt is based on “unitary charges” which start this month and will continue for 35 years. They include fees for services rendered, such as maintenance and cleaning, as well as the repayment of loans underwritten by banks and investment companies.

The situation is expected to worsen as PFI projects spread across the world (Getty)

Basically, a PFI is like a mortgage that the government takes out on behalf of the public. The average annual cost of meeting the terms of the UK’s PFI contracts will be more than £10bn over the next decade.

And the cost of servicing PFIs is growing. Last year, it rose by £5bn. It could rise further, with inflation. The upward creep is the price taxpayers’ pay for a financing system which allows private firms to profit from investing in infrastructure.

An NAO briefing, released last month, says: “In the short term using private finance will reduce reported public spending and government debt figures.” But, longer term, “additional public spending will be required to repay the debt and interest of the original investment”.

A case in point is Britain’s biggest health trust, Barts Health NHS Trust in London, which was placed in special measures last month. It is £93m in debt – struggling under the weight of a 43-year PFI contract under which it will pay back more than £7bn on contracts valued at a fraction of that sum (£1.1bn).

 PFI’s were the brainchild of the Conservative Party in the 1990s, but were swiftly embraced by New Labour. Successive governments signed hundreds of the deals. PFI-funded schools, streetlights, prisons, services, police stations and care homes can be found across Britain.

 

The system has yielded assets valued at £56.5bn. But Britain will pay more than five times that amount under the terms of the PFIs used to create them, and in some cases be left with nothing to show for it, because the PFI agreed to is effectively a leasing agreement. Some £88bn has already been spent, and even if the projected cost between now and 2049/50 does not change, the total PFI bill will be in excess of £310bn. This is more than four times the budget deficit used to justify austerity cuts to government budgets and local services.

Gateway Surgical Centre, London, is run by Barts Health NHS Trust, which is struggling under a £7bn PFI (Alamy)

Responding to the findings, TUC General Secretary Frances O’Grady said: “Crippling PFI debts are exacerbating the funding crisis across our public services, most obviously in our National Health Service.”

According to Jean Shaoul, professor emerita at Manchester Business School, PFIs have been “an enormous financial disaster in terms of cost”. She added: “Frankly, it’s very corrupt... no rational government, looking at the interests of the citizenry as a whole, would do this.”

Unlike government funding, PFI’s cannot be adjusted to match the economy’s fortunes. They are governed by contracts that often run to thousands of pages. In contrast to the radical cuts to public spending, less than 1 per cent has been trimmed from the total cost of PFI deals since 2012.

Danny Alexander, Chief Secretary to the Treasury, admitted last month: “Too many of the old PFI deals were poorly negotiated... with high costs draining local and national coffers.”

PFI contracts could escalate like America’s subprime mortgage fiasco (Getty)

Last year The Independent revealed how firms given 25-year contracts to build and maintain schools doubled their money by selling their shares in the schemes less than five years into the deals. Four – Balfour Beatty, Carillion, Interserve, and Kier – made combined profits of over £300m.

Repeated concerns over projects suffering years of delays and soaring costs have been raised in Parliament in recent years, chiefly via the Public Accounts Select Committee. Its chair, Margaret Hodge, has spoken of Labour’s promotion of the deals during its time in power: “I’m afraid we got it wrong... we got seduced by PFI.”

Allyson Pollock, professor of public health research and policy, Queen Mary University of London, said the diversion of funds from other budgets to PFI payments make the schemes “an engine for closure of public services and further privatisation”.

 

 

 

 

 

Comments

Sportingmac

 

The analysis is spot on - regarding poor value for money. However - it should be countered by what was needed at the time - new or improved hospital facilities, schools, etc - they were built to meet a demand (we hope so anyway) - but rather poorly - the deals were done.

The resulting 'negotiated' deals (contracts) were poorly poor value for money - but - PFI allowed the government of the day to spend on credit thereby enabling them to tell the public that they had reduced the 'deficit' - but failed to tell the taxpayer that they had increased public debt.

Prudence Brown has a lot to answer for - and this government is no better having failed to tackle the issue of poor contracts.

PharmaC

 

PFI is an utter corrupt scam! New sovereign debt-free money should have been used for these basic essential infrastructure projects. It's as simple as that - and not inflationary; PFI is deflationary and part of the cause of our on-going depression.

 

Greg Lord

These politicians are parasitical leaches on our National Political decision making.They are full of back room deals,nods and winks.They should be exposed to the light of day so we can drive them out of office and into the criminal justice system.

 

James

 

What Indy fails to mention is that both Labour and Conservatives have given these contracts to party donors after donations have been made - this is political corruption that breaches section 61 of Political Parties Elections & Referendums Act as well as Bribery Act and Prevention of corruption Act. Most of the debt is for drugs in mental health that do not work and patients do not take. Not only do these companies donate to political parties, but MPs have shares in the firms.

sheilac

 

TBH I think that although this is a result of corrupt and stupid government, a society gets the government it deserves to a large extent, particularly in a democracy, even in an imperfect democracy. We the British public are stupid enough to be seduced by the oxymoronic idea of being entitled to excellent public services and low tax to the extent that the so called socialist Labour Party are bogeymen if they propose tax increases and so they don't. We sell off all our hospitals built with public and charitible funds over centuries - often beautiful properties, not maintained at all, belonging to us the public. They are promptly renovated and sold at huge profit by private developers. We then build shiny new low spec hospitals on shocking credit terms like financially illiterate people, paying firms with shareholders sitting in the Houses of Parliament. Meanwhile nurses no longer have cheap accomodation like they used to and we can't attract and retain nurses in the NHS, so we pay them agency rates as they work for private agencies so nurses can survive and the agencies can clean up and pay their investors lovely dividends - again probably investors sitting in the Houses of Parliament or donating to Tory party funds and most likely avoiding taxes. But hey, don't worry, we have a free economy, increasing privatisation, won't be wasting money on wasteful inefficient public services unnecessarily. Duh!

sheilac

I mean that the developers renovate the old hospitals, make them into flats, often building new properties in sometimes large grounds.....

JDarby

They spend, we pay, shareholders benefit, service delivered goes south, public services become bankrupted.
Sounds like a plan for expensive failure.

 

 

 

Je

Nationalise the contracts. Give them fair compensation. Not an absurd return. And get £200 odd billion back. Anyone got a better solution?

Zorba Eisenhower

never, ever, vote Liebore

 

Henry_H

Something else we can thank Labour for. And people still want to vote for them...

 

PG

"PFI’s were the brainchild of the Conservative Party in the 1990s, "

What part of that did you fail to read?

 

MaccLad

Thanks for confirming that the Labour Party are incapable of thinking for themselves or conducting any kind of economic analysis.

 

James

PFIs were not the brainchild of Conservatives in the 1990s - they refused the idea that was presented to them and later presented to Blair who took it up when the firms donated to Labour. However, Cameron has continued them and like Labour, has accepted party donations.

RANTINGRON

Why do politicians, of all colours, hate people so much?

PG

Because they are people...

 

AjarnKen

do not tell me that I am in debt - the debt is lies fairly and squarely at the door of politicians who manipulate and steal money from taxes to use in wars abroad and to line the pockets of corporations they are in bed with.

That is ultimately who is "in debt" - if there is even such a thing

 

PG

 

Being "in denial" of the fact won't make it go away. That is the greatest problem in Britain today - the refusal to accept reality and act upon it.