PFI Contracts – Who Pays the Ultimate Price?

We note that private finance initiative (PFI) – a procurement method using private sector investment to deliver public sector infrastructure and services – has been much in the news again of late. In 2012 The Guardian was reporting that ‘PFI schemes for new hospitals could end up costing NHS trusts 12 times as much as the capital outlay.’ And that the cost of controversial PFI contracts would continue to soar for another 5 years and end up costing taxpayers more than £300bn. The then recently published figures suggested repayments would continue to rise until they peaked at £10.1bn a year by 2017-18.

So here we are, and PFI contracts are littering all the major news outlets. The Guardian continues to  warn that ‘PFI is bankrupting Britain’ Sure enough – predictions were right: ‘this is not just about poor financial control in the NHS – UK PFI debt now stands at over £300bn for projects with an original capital cost of £55bn.’

Little wonder there is no money for new hospitals or NHS funding generally – it’s all going to PFI contracts. As The Independent points out, giving more examples of inflated returns on loans, “PFI consortia consist of bankers, construction companies and facilities management firms. The projects work like a mortgage, with repayments on the work completed made over decades. There is just one snag: the interest rates for PFI agreements are scandalously high … nearly £250bn will be spent swelling the coffers of PFI groups.” How many nurses,’ GPs’ and consultants’ salaries might that pay? it asks. Probably enough to cover all of them for 10 years.

The media is awash with many examples, the question is: What was the alternative in the first place? A lot of these contracts were signed as long ago as 1997 for a 25-30 year term. But is the benefit worth the long-term cost? The government says less than 3% of NHS budget goes on PFI – but it’s still a mammoth amount of money to be leaking away.

A chairman of The Centre for Health and the Public Interest (CHPI) has said its recent report "shows for the first time the huge amount of taxpayers' money which is leaking out of the NHS through the profits generated by PFI companies. Given the extreme austerity in the NHS … the government needs to take action to stop this leakage …"

Labour MP Stella Creasy has been campaigning for a competition enquiry into public borrowing, she said: “Governments may keep using these loans but with Britain struggling with so much public debt we can’t afford to keep paying for this mistake.” And in The Guardian she was quoted with ‘If Theresa May is serious about taking on the unacceptable face of capitalism, she could save Britain a fortune if she goes after the legal loan sharks of the public sector … It's now painfully clear that the intended benefits of private sector skills to help manage projects have been subsumed in the one-sided nature of these contracts, to devastating effect on budgets.’

What’s the answer? More than 107 PFI contracts have been analysed by the CHPI – data shows that the companies behind the deals have pre-tax profits of £831 million and £480 million has been paid out in dividends to their investors. How do they get to sleep at night, one wonders? (Even if on a £7K Duxiana Swedish luxury mattresses, which they could afford!) Maybe their consciences would allow the public sector to re-negotiate the terms of the remaining contracts – as this is simply not sustainable, with the public paying the ultimate price.

But on the other side of the coin - and there always is one - while its tempting to see this as the unacceptable face of capitalism, this money does belong to someone. While certainly some of the profits have been creamed off, ultimately the money belongs to the investors - including maybe some that look after our pensions. Would we want them to take the shortfall?


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Voices (2)

  1. Little Acorn:

    That’s not all the ‘costs’. I know of several instances where public bodies have purchased equipment at year end to be installed in PFI buildings. The end-users didn’t think about this and the pieces of equipment, several years on, are still sitting it their boxes because the buyer can’t afford the charges the PFI firm wants to make, in some cases, very minor work.

    Yes, the end-user should have thought about this, however, many of them probably didn’t even know that they were in a PFI building.

  2. Final Furlong:

    Last time I looked, this firm employed 50 staff…

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