The PFI has been used extensively to help fund new government programmes, especially in the National Health Service. Private investors stump up cash to build a hospital and provide some maintenance and services. Companies are paid back over the next 20 to 30 years – with handsome profits – from the public purse. Tony Blair and Gordon Brown argued “everyone’s a winner” – the PFI meant new facilities now at little initial cost to the taxpayer with guaranteed medium-term returns to investors.
But the controversy which has dogged the PFI from the outset has now taken a new twist with the revelation that many of the initial contracts between constructors and government were poorly negotiated – so private investors are receiving “unexpectedly high” profits. In other words, critics say, taxpayers are being fleeced. And a secondary market has opened up in which private companies are selling rights to future income streams at a huge mark up.One hospital in Portsmouth did a deal with the construction company Carillion. The firm initially put in £12 million but later sold its stake, and rights to future revenue, for £31 million – a mark up of 160 per cent. The ESSU report calculates the average mark up for reselling health sector contracts – which may change hands many times between British and foreign investors – is 66.7 per cent.
The scheme’s defenders say these huge mark ups should be of little concern since capital gains tax is paid on each transaction. However, this is not happening. In order to minimise their CGT exposure, much of the selling and reselling now takes place in tax havens – so British taxpayers are paying excessively for PFI services while revenue streams are traded between offshore investors.
Treasury Minister Justine Greening says HM Revenue & Customs will not change the way it assesses the taxation of PFI profits despite the Public Affairs Committee revealing that 90 of 700 PFI projects have moved offshore. Stella Creasy, Labour MP for Walthamstow, accused the Treasury of “breathtaking complacency”.
