The schemes – which are favoured because they keep government infrastructure spending off the balance sheets – have been popular with both Conservative and Labour governments and continue to be used by the coalition.
But after months of close scrutiny by MPs, the National Audit Office, and this week a detailed analysis by the Financial Times, the public benefits of fixed PFI contracts – which give such attractive returns that they are traded on the financial markets with an increasing number of beneficiaries off-shoring the profits – are being questioned by Labour and Tory MPs.
Taxpayers are paying more than £20 billion in extra borrowing costs, with an additional £2.8 billion to £4 billion costs in fees to bankers, lawyers and consultants. This is on top of the £53 billion original capital financing arrangements, according to the FT.
Since the PFI was first devised in 1992, more than £70 billion of capital has been raised to provide new hospitals, schools and prisons, new roads and defence projects.
Payment for running and maintenance will cost taxpayers £240 billion to 2050 – about one seventh of current national income, according to FT and industry estimates.
Labour MP Austin Mitchell has long been critical of the rigid nature of the contracts and the inability of the Department of Health to vary some unsustainable repayment arrangements for PFI hospitals built on the assumption of rising health spending and growing business.
Spending cuts and restructured care provision has led to at least 22 PFI hospitals spending so much on fixed payments – up to 18 per cent of income – that they are unsustainable.
Since 2008’s credit crunch, the cost of financing has shot up.
Trades unionists have long expressed concerns about the true costs of the PFI and public-private partnerships, but Tory MP Richard Bacon, who sits on the House of Commons Public Accounts Committee, told the FT: “I first really began to worry about the private finance initiative back in 2003 [when] I ran into an investment banker who said: ‘I like the PFI. It’s good for business. We make a lot of money out of it. But as a taxpayer, it really cheeses me off.’ That rather woke me up. This was not a trade unionist complaining. It was a City fat cat getting fatter on the proceeds.”
Treasury Minister Justine Greening earlier this year rebuffed MPs’ concerns at the growing number of companies off-shoring the profits from their PFI contracts – at least 90 to date, according to the European Services Strategy Unit think tank – even though part of the original cost/benefit justification for the deals was the tax claimed back from profits.
Some companies have made profits of 60-80 per cent, with equity holders seeking minimum annual returns of 10-13 per cent.
Jesse Norman, the Conservative MP for Hereford who has been running a campaign for a rebate on PFI deals, said: “If these numbers are right, you would need a huge amount of genuine risk transfer and enormous efficiency gains for this to be a fair deal for the taxpayer.”
But earlier this year David Metter, chief executive of Innisfree, one of the biggest PFI investors and chairman of the industry’s trade body the PPP Forum, told MPs there would be no rebate to taxpayers.
Mr Metter, who personally earned £8.6 million managing his company’s PFI contracts, told the Public Accounts Committee: “We have said no. We can’t go back to the lenders and equity investors and say ‘will you take a haircut?’”
Mr Metter said investors “had entered into long-term financial contracts in good faith on both sides” and “everyone is terrified” of the idea of those being broken.
It would be the equivalent of going back to investors in government gilts “and asking if they would take a little bit less interest”, and would damage Britain’s credit rating , he said.
