Inquiry launched into PFI contracts after report reveals deals cost taxpayers billions

A National Audit Office (NAO) report published earlier this year has prompted the Public Accounts Committee to lead an inquiry into private finance initiatives (PFI) after it revealed that projects such as schools and hospitals were privately costing taxpayers billions of pounds.

The report released in January highlighted how the government over the next 25 years would be paying nearly £200bn of public money to contractors under private finance deals. The NAO claimed there was little evidence that handing public contracts to private organisations offered value for money.

It’s calculated there are currently 716 operating public private partnerships with a capital value of £60bn currently operating, with repayment for these projects costing the taxpayer £10.3bn last year. The existing contracts will cost the taxpayer £199bn by the time they end in the 2040s, according to the watchdog.

Since the 1990s, successive governments have used the initiatives known as PFI and PF2 to fund assets such as schools and hospitals. First introduced under John Major's Conservative government, the deals were put in place to allow private consortiums to build facilities in return for regular payments over as many as 30 years. PF2s were a relaunch of the failing PFI following the 2008 financial crisis by the David Cameron government.

"After 25 years of PFI, there is little evidence that it delivers enough benefit to offset the additional costs of borrowing money privately."
Meg Hillier, chair of the committee.

Following the report’s release in January, Labour’s Meg Hillier, chair of the public accounts committee, slammed PFI deals as an effective way of delivering public projects. She accused HM Treasury of rebranding PFI without fundamentally changing it. 

“After 25 years of PFI, there is still little evidence that it delivers enough benefit to offset the additional costs of borrowing money privately,” Hillier added. “I am concerned that Treasury has re-launched PFI under new branding, without doing anything about most of its underlying problems.”

The January report concluded that overall cash spending on private finance deals was higher than publicly financed alternatives and an analysis of the costs for building one group of schools revealed “costs are around 40% higher than the costs of a project financed by government borrowing”.

Carillion’s collapse at the start of the year, a firm which worked on various PFI projects has increased the level of scrutiny and criticism towards the deals.

A government spokesperson responded to the report by claiming it had “reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money”. The government also claims private finance is now “more transparent” than ever before with data published annually. 

But the committee is now set to ask HM Treasury and the Infrastructure and Projects Authority whether PFIs are delivering value for money for the taxpayer, how they will keep costs down over the decades ahead, and what they have learned about how best to finance public projects.

Just this week, Scottish Labour party leader Richard Leonard committed to “signing no new private finance deals” should he become first minister and demanded a review of how the public sector purchases goods, services and construction projects in Scotland.

Written evidence to the inquiry can be submitted by midday on Tuesday 20 March and can be done so by clicking here.

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