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Taxpayer to foot £199bn private finance bill


Taxpayers face a bill of £199bn for projects outsourced to private companies even if no new schemes are awarded public money.

The National Audit Office found that the 716 existing deals under Private Finance Initiative (PFI) and the successor, PF2, cost around £10.3bn in 2016-17, and costs of that level will continue into the 2040s.
The report was compiled before the collapse of Carillion, but its release as the contractor goes into liquidation will fuel the arguments against the controversial PFI scheme, in which private companies tender for money for public projects like schools and hospitals.
Although the report from the NAO did not draw conclusions on the merits of the scheme, it said that PFI often “results in additional costs compared to publicly financed procurement”.

Video: May and Corbyn clash over troubled firm

The government’s National Infrastructure Plan suggested that money raised through PFI in 2010 cost between 2% to 3.75% more than from state borrowing.
The report adds: “Small changes to the cost of capital can have a significant impact on costs.
“Paying off a debt of £100 million over 30 years with interest of 2% costs £34 million in interest. At 4% this more than doubles to £73 million.”
Some of the examples highlighted by the report include:
Parklands High School in Liverpool, where the City Council is paying around £4 million each year. The building is now empty. Between 2017-18 and the contract end in 2027-28, it will pay an estimated £47 million, which includes interest, debt and facilities management payments, if no changes are made to the contract. The school cost an estimated £24 million to build.
Transport for London (TfL) terminated three deals achieving reported savings of £476 million, which are some of the largest that have been recorded.
Additional capital works of approximately £60,000 in a [unnamed] local authority PFI school increased to more than £100,000 once fees were factored in – the local authority challenged this and the SPV [special purpose vehicle] agreed to reduce some of the management and approval fees although bank fees of £20,000 will still have to be paid.
The report has not been able to assess whether the higher costs were offset by better quality facilities or reduced risk to the taxpayer.

Image: The report was written before the collapse of Carillion but may fan the flames against PFI
But, the chair of the influential House of Commons Public Accounts Committee, Labour MP Meg Hillier, said there was little evidence the PFI scheme was beneficial.

She said: “Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change.
“I am concerned that the Treasury has relaunched PFI under new branding, without doing anything about most of its underlying problems.
“We need more investment in our schools and hospitals but if we get the contracts wrong, taxpayers pay the price.”
Carillion’s liquidation has hit 900 schools in Britain and will affect 1400 apprentices across the country.

Video: Counting the political and financial cost of Carillion’s collapse

At Prime Minister’s Questions on Wednesday, Labour leader Jeremy Corbyn said: “These corporations need to be shown the door. We need our public services provided by public employees with a public service ethos and a strong public oversight.”
A Government spokesman said: “Many vital infrastructure projects like roads, schools and hospitals are paid for by PFI and PF2, stimulating our economy, creating jobs and delivering better public services.

More from Carillion

“We have reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money.
“Taxpayer money is protected through PFI and PF2 as the risks of construction and long-term maintenance of a project are transferred to the private sector.”

Source: Sky

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