Taxpayers will pay at least £200bn for PFI deals over next 30 years

Written by Emilio Casalicchio on 18 January 2018 in News

Rising bill for private finance highlighted by National Audit Office

PFI school in Edinburgh - creative commons

Britain will be due to pay almost £200bn in PFI payments over the next 30 years, official UK spending watchdog the National Audit Office has said.

The body said even if the UK starts no new agreements with private firms it will spend £199bn on the agreements into the 2040s.

But it said there was insufficient data available to work out whether the controversial agreements were a better deal than normal public contract procurement.

It comes after construction giant Carillion - which held numerous public contracts - collapsed on Monday putting thousands of jobs at risk.

The NAO report was compiled before the firm went into liquidation, but it shines a light on the total costs of outsourcing under PFI arrangements.

The PFI system - and its successor PF2 - allow private firms to borrow cash to build new services like schools and hospitals safe in the knowledge the taxpayer will pay it back. It ensures governments keep their borrowing off the balance sheet, but at a far greater cost in the long term.

In Scotland a different version of private finance is used after the SNP reduced the private sector's profit margins with its NPD model, but the principle is the same.

In its new report the NAO said the use of PFI and PF2 had reduced over time but the “legacy of deals have a long-lasting impact”.

It said the private finance route often resulted in "additional costs" compared with standard procurement agreements.

Some schools cost 40 per cent more than those funded by government borrowing and some hospitals 70 per cent more, it revealed.

“The public sector will still be making PFI unitary charge payments to private finance companies in the 2040s," the watchdog explained.

“Future payments for existing projects are forecast to total £199bn from 2017-18 onwards – an average of £7.7bn a year over the next 25 years.”

It said payments added up to £10.3bn in the last financial year - 60 per cent of which came from just four government departments.

But it noted: “There is still a lack of data available on the benefits of private finance procurement.”

And damningly it said the Treasury had failed to fix some of the main concerns with the PFI system when it rebranded it as PF2.

Public Accounts Committee chair Meg Hillier said: “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."

GMB national secretary Rehana Azam said PFI was a “catastrophic waste of taxpayer’s money”.

She fumed: “Nothing can hide the chronic failure than its proven to be over decades - Carillion is just the latest example of how bad things go wrong when public services are left in the hand of profit-hungry companies.

“Once the shiny facade comes off, PFI deals are financial time bombs that leave public bodies shackled into decades of eye-watering payments, public services unaccountable to the people and the taxpayer on the hook when things go wrong.”

Unison boss Dave Prentis meanwhile said: “The NAO report is a scathing indictment of all that is wrong with PFI.

“After nearly a generation of PFI deals, there’s very little, if any, evidence to prove that anyone – apart from the companies profiting from the huge contracts – has benefitted."

But a Government spokesperson said: “Many vital infrastructure projects like roads, schools and hospitals are paid for by PFI and PF2, stimulating our economy, creating jobs and delivering better public services.

"We have reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money.

"Taxpayer money is protected through PFI and PF2 as the risks of construction and long-term maintenance of a project are transferred to the private sector. Private finance is more transparent, with information and data published by government annually.”

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