by René Lavanchy
THE multi-billion-pound pension scheme for council staff could be at risk as councillors come under pressure to invest it in the Government’s privately financed school building programme, public sector union Unison has warned.
Union officials say that Partnerships for Schools, the agency tasked with setting up deals to build schools under the private finance initiative, has been calling on local authorities in the Local Government Pension Scheme to provide capital funding for the programme as the recession causes bank lending – the usual source of PFI capital – to dry up.
They are worried that the current economic climate makes it more likely for companies contracted to build PFI schools could go bust, leaving the pension schemes with a bad debt.
Colin Meech, Unison’s national officer for capital stewardship, told Tribune he feared pension funds could be saddled to a failing company similar to Metronet, the private Tube maintenance company that went into administration with £1.7 billion of debts.
“PFI is a sure-fire investment in a booming economy, not in a recessionary economy,” he said. “If you’re the long-term financier, what happens if the project’s Metronet? It was a consortium of contractors who sucked the project dry. We’re not at all clear what the financial arrangements are.”
Unison quotes a Partnerships for Schools spokesperson as saying: “We’re in very early discussions… but all it’s part of a very proactive strategy to ensure that the delivery of schools is not affected by the current economic climate.”
Mr Meech said that councils could decide to invest in PFI projects for local political reasons regardless of the risk, creating a conflict of interest. But a European Union directive forcing pension funds to act in the sole interests of investors has never been incorporated into British law, despite having been passed four years ago.
“Because the LGPS is established with a fund, so the directive applies. We have been having a running battle with the Department for Communities and Local Government over its application.”
The directive requires funding organisations such as councils to be legally separate from their pension funds. But Mr Meech commented: “At the moment, the vast majority of the LGPS is simply a council committee, with the fund stored in the council’s main bank account.”
Tim Byles, chief executive of Partnerships for Schools, recently admitted to Local Government Chronicle that his agency had been forced to approach the European Investment Bank for £300 million of funding for schools. He insisted that PFI remained a safe investment offering profitable returns.
