The Lost Billions investigation: 'Scandalous PFI rip-offs are still a major problem'

A national drive to save cash by renegotiating controversial private finance contracts isnt working, an NHS campaign group has warned
A national drive to save cash by renegotiating controversial private finance contracts isnt working, an NHS campaign group has warned
0
Have your say

A national drive to save cash by renegotiating controversial ‘private finance’ contracts isn’t working, an NHS campaign group has warned.

Extra costs and rocketing inflation are set to add at least £4bn to the overall price tag of Private Finance Initiative (PFI) schemes, according to figures obtained from hundreds of public bodies by JPIMedia Investigations.

Dr John Lister, secretary of the campaign group Keep Our NHS Public, said the investigation showed “that all of the scandalous rip-offs that were in the earliest schemes are still a major problem”.

READ MORE:: Private Finance Initiatives (PFIs) explained in easy terms

He said: “Despite various efforts by teams of management consultants to adjust contracts and trim the costs, this is still by far the most expensive way to build and run hospitals, giving the whip hand to companies who have no loyalty or concern for the NHS.”

He said the real problem now was “how to get out of these existing contracts at minimum possible costs to avoid another two decades of rip-off payments”.

Some public authorities have succeeded in negotiating savings in their PFI contracts, figures obtained by JPIMedia show.

In Suffolk, for instance, council chiefs spent almost £50m in early repayments to reduce the spiralling costs of a waste management deal worth almost £600m.

Coun Matthew Hicks, the county council’s leader, said the authority had been concerned about saving money to support other services at “a time of reduced government funding”.

The PFI model was scrapped by the Treasury last year but across the UK, an ideological debate rages over how to both deal with the costs of legacy schemes while also funding new infrastructure in the coming decades.

The Treasury said it was supporting health authorities to manage the costs of old PFI deals, through a Centre of Best Practice established at last year’s Budget.

Chancellor Sajid Javid has also pledged to “bring in an infrastructure revolution” and invest an extra £13.4bn into public services.

Meanwhile, Shadow Chancellor John McDonnell has said Labour would bring existing PFI schemes “in-house”.

The Scottish Government is eyeing a model of public-private partnerships pioneered by the Welsh Government.

Like PFI, the so-called Mutual Investment Model sees private partners build and maintain public assets for a fee.

But the deals don’t include services like cleaning, which have proved costly through PFI. The model also involves the public sector as a minority co-investor, taking a share of the profits.

A Scottish Government spokesperson said PFI had left “taxpayers in Scotland liable for a £30 billion legacy of payments”, adding: “The funding of public infrastructure has vastly improved since 2007.

“We are working to ensure PFI contracts which have been inherited provide the best value for money for the taxpayer – and to ensure savings are achieved from existing contracts, wherever possible.”

A Welsh Government spokesperson said: “The MIM actively promotes wellbeing, value for money and transparency unlike historic PFI schemes, and is included in the United Nations compendium of People First Public Private Partnerships.”

The Northern Ireland Audit Office recommended in January 2014 that all Stormont departments file regular reports on PFI spending and also efficiency reviews.

However, we can reveal little appears to have been done since then.

Departments are citing the collapse of the Assembly in January 2017 as a reason for this but the Audit Office has expressed concern, saying it expected its recommendations “to be followed through” regardless.

Q&A: Megan Waugh, postgraduate researcher studying the Private Finance Initiative

How would you describe the value to taxpayers of PFI schemes?
PFI has never provided value for money for taxpayers. These are contracts which were forced onto a public sector desperate for infrastructure investment. They have never made sense financially, public sector borrowing would have been cheaper and instead councils and NHS trusts have been locked into increasingly expensive repayments over long-term inflexible contracts. And at every step of the process from design, construction and maintenance, quality and quantity of service provided has been reduced in order to maximise profit. Research on the first round of PFI hospital projects showed that bed numbers were reduced by almost a third.
Locking councils and NHS trusts into these contracts means that not the public only get one building for the cost of two or three but they are forced to cut back on staff and essential equipment in order to keep paying over the odds for maintenance with no evidence that it is even taking place.

Our work has found evidence that the cost of PFI contracts has ballooned by more than £4bn. What do you make of this?
I would say that this is likely to be an underestimation of the cost of the contracts. These calculations are based just on the monthly Unitary Charge payments which don’t always include additional extortionate payment for any additional work not included in the contract as well as legal and consultancy fees.

Was it a mistake, in many cases, to link annual payments to the RPI or RPIX measures of inflation?
These contracts were a mistake from the outset, the public sector did not have the expertise or resource to understand all aspects of the contracts they were signing, councillors were under huge pressure to sign off on contracts without properly understanding the financial implications.

Sometimes the authorities are being billed, on top of their Unitary Charge payments, for extra services like new fixtures and fittings, both for the one-off fitting costs and for ongoing maintenance/cleaning. Is this fair, or a rip-off?
These ‘extra charges’ are incredibly common and a complete rip off. Public authorities trapped in PFI contracts are forced to use the PFI contractor who can and do charge over the odds for basic maintenance and repairs such as £24,000 to adapt a disabled toilet.

We asked each authority to give us copies of their PFI contracts. Many refused, citing commercial confidentiality, while some others heavily redacted their contracts. What do you make of this - does the public deserve to see these contracts?
These contracts and the people who are profiting from them are not accountable to anyone. Councillors, MPs and members of the public have legitimate questions about the safety of these buildings about the level of profiteering but the answers remain hidden behind the cloak of ‘commercial sensitivity’ and ‘confidentiality’ It is very difficult to challenge this legally as private interests trump the public interest.

What are the possible solutions to the rocketing cost of PFI schemes, and which is your preferred solution?
Nationalising the legal entities (the Special Purpose Vehicles) at the heart of these schemes is something that John McDonnell raised at last year’s Labour Party Conference.

In your view, has the Government failed to come up with a replacement to PFI schemes and if so, does it mean we’re not currently getting the investment in infrastructure that we need?
This Government is not interested in major investment in public service infrastructure and therefore has no interest in a replacement or alternative to PFI. It may have called an end to PFI but public private partnerships and widespread outsourcing have continued across all aspects of public life and we are stuck with these toxic contracts for decades to come.

Q&A: Joel Benjamin, co-founder of campaign group The People Vs PFI

Commenting on JPIMedia’s findings that the costs of PFI schemes was due to be at least £4b higher than originally expected, he said: "It’s a shocking waste of public money, but in a way, it’s not a surprise when you consider these PFI project mortgage repayments are inflation linked and are going to last 25 or even 30 years.

"But the question is: how were PFI deals even considered the right option, let alone becoming the only game in town as promoted by the UK Treasury? It defies logic.

"Somewhere along the line the consultants that provided the advice on these deals, suggesting they represented value for money need to be held up to the spotlight - and to some extent, the councillors and commissioners that signed off on PFI deals need to be held to account also."

Has PFI left the public sector short of the skills needed to build infrastructure?
It used to be the case that we would have 50 per cent of planners and architects working in the public sector. The current figure is about 0.7 per cent.
These were people that would draw up designs in the public interest with consideration for public space and usability.
They would build flexibility into the design.
If your designers and architects are working for profit, they are time-stretched and they may only have a couple of meetings with the client - not actually work there. They don’t put the thought into how public the design should be over the long-term.
What we are also missing is the checks and balances. What we really need in the public sector is people that can push back and question these private design plans and contracts.
As a result we end up seeing a lot of dodgy plans that don’t serve the public and are not well thought out.
All the designing, planning and engineering skills required to do that sort of thing have been lost to the private sector. As a result, we face a real crisis as to how we design, plan and deliver infrastructure in this country, with the state beholden to the private sector.
The skills we would need to manage the design and construction just don’t exist in the public sector any more.

Were the PFI contracts signed off too complex? Or were they not held up to the proper scrutiny?
The sheer complexity of the PFI was overwhelming. Some of the contracts run to 10,000 pages, spanning complex social needs that extend decades into the future.
To scrutinise these things in detail was just not possible. Councillors meant to decide on these things were not given the documents until a week before they were meant to vote on it.

What should the Government do about legacy PFI contracts still being paid by public bodies up and down the country?
The PFI industry is currently promoting the buy-out of PFI debts, under HM Treasury ‘green book’ rules which they helped write.
This means locking in eye-watering, inflation-linked profits over the remaining contract term, plus paying a large breakage fee on top, only to refinance the PFI debts via loans from the Treasury Public Works Loan Board at around 1/4 the current interest rate.
Whilst preferable to the status quo - this is a false solution, as it locks in the PFI usurers profits, forcing the British public to effectively pay twice for PFI deals, which the RBS Chairman Sir Howard Davies concedes amount to a ‘fraud on the people’.
The only palatable solution, as Helen Mercer of People vs PFI has proposed, is to nationalise the Special Purpose Vehicles which control the PFI assets via an act of Parliament, with Government free to decide the levels of compensation (where warranted), taking account of profits to date and UK taxes actually paid.