PFI contracts ‘costing departments 12 times more than they raise’
Contracts signed under the Private Finance Initiative are costing some Whitehall departments 12 times more than the amounts that they raise, a new study shows.
By Christopher Hope, Senior Political Correspondent
10:00PM BST 16 May 2012
The Association for Consultancy and Engineering found the Ministry of Justice paid out £12 for every £1 of private sector investment raised through PFI deals. This was nearly four times the rate of the some departments.
PFI schemes, which were introduced by the Tories in the 1990s and expanded under Labour, are seen as a cheaper way to build schools, roads and hospitals.
Private contractors meet the costs of building and running hospitals, schools and roads by recouping the money from the taxpayer over many years. Taxpayers are committed to pay £229billion for new hospitals, schools and other projects with a capital value of just £56billion.
The Association examined PFI deals, signed between 1996 and 2010 and found that the deals done in the first five years were the worst value for money, costing the Government £7.45 for every pound of private investment raised.
The ratio then fell to £4.03 for every pound raised between 2001 and 2005 and then rose again to £5.43 in the last five years to 2010, possibly because the financial crisis increased the cost of capital for private firms.
The Ministry of Justice was the worst offender, facing a cost to the taxpayer of £11.53p for every pound of private investment raised through PFI. That compared with the Department for Communities and Local Government, which had to pay £2.69p for every pound raised from the private sector.
Generally departments which were able to make better and more frequent use of PFI paid the lower costs than other departments.
Nelson Ogunshakin, the association’s chief executive, said: “There was clearly a divergence between departments that shows the need to review and learn lessons.Those that had built up a greater deal of experience in running PFI deals appeared to procure them more effectively.”
The Coalition has agreed 71 new PFI deals since coming to power. George Osborne, the Chancellor of the Exchequer, is currently working on an overhaul of PFI by finding for a cheaper way of harnessing private sector money to fund public projects.
Last night Jesse Norman, the Conservative MP who has been campaigning to reform the system of PFI, said the study showed why this reform was so important.
He said: “This report perfectly illustrates why it is so important to have a really effective central unit procuring infrastructure across the whole of Government.
“The last Government shoe-horned a huge range of public projects into the PFI, from prisons and refuelling aircraft to motorways, hospitals and schools – this report perfectly illustrates the folly of that approach.”
Earlier this month the influential Public Accounts Committee suggested that companies should be force to share excessive profits from PFI deals with councils and local health authorities.
Much of the additional spending under PFI goes on expensive maintenance contracts to private sector PFI companies.
A series of Freedom of Information requests last December disclosed how hospitals and NHS Trusts locked into long term PFI deals were being forced to pay “hyper-inflated” charges for basic services.
They included £242 to put a padlock on a garden gate at a trust in North Staffordshire, £466 to replace a light fitting and £75 for an air freshener in Cumbria and £15,000 to “install a laundry door following feasibility study” at a trust in Salisbury.
Other charges include £8,450 to install an “additional dishwasher” for a NHS trust in Hull, £962 to “supply and fix notice-board” at a trust in Leeds and £26,614 for the “replacement of shower room doors” at the Sussex Partnership Trust.
Last night a Treasury spokesman said: “The Government has already taken action to drive savings in privately financed projects.
“We aim to deliver a new model, which is cheaper, accesses a wider range of financing sources and strikes a better balance of risk between the private and the public sectors. This will ensure a fair deal for the taxpayer now and in the longer term.”