Labour plans for PFI could cost tax­payer up to £50bn

Bring­ing con­tracts un­der state con­trol could be com­pli­cated and costly, fund’s fig­ures sug­gest

The Daily Telegraph - Business - - Front Page - By Alan Tovey

TAX­PAY­ERS could be on the hook for as much as £50bn un­der Labour’s pledge to end pri­vate fi­nance ini­tia­tive con­tracts and bring the schemes back un­der state con­trol.

John Laing In­fra­struc­ture Fund (JLIF), a lead­ing op­er­a­tor of PFI schemes, has cal­cu­lated that were its £871m of UK con­tracts re­turned to state con­trol, it would re­ceive 86pc of their value in com­pen­sa­tion. This works out at roughly £750m.

There are cur­rently more than 700 PFI con­tracts in the UK with a cap­i­tal value of £59bn. It is im­pos­si­ble to know ex­actly what level of com­pen­sa­tion would be paid out on all th­ese con­tracts if a Labour gov­ern­ment chose to take back con­trol of the out­sourced projects. But, us­ing JLIF’s cal­cu­la­tion as a rough proxy, which is a rea­son­able as­sump­tion ac­cord­ing to ex­perts, the bill could be as high as £51bn.

JLIF runs 57 PFI projects in the UK. It op­er­ates and main­tains as­sets in­clud­ing schools, hospi­tals and mo­tor­ways. The com­pany high­lighted the po­ten­tial pay­out in a trad­ing up­date as it spelt out risks to the busi­ness fol­low­ing the Labour Party con­fer­ence in Septem­ber, when shadow chan­cel­lor John McDon­nell said a Labour gov­ern­ment would axe PFI deals.

David Hardy, in­vest­ment ad­viser at FTSE 250-listed JLIF, said: “We have had a lot of ques­tions from in­vestors about what it would mean for us. This was the first op­por­tu­nity we have had to make clear what the im­pact of such a change would be.” Shares in JLIF slipped 3.4pc on the dis­clo­sure. In his con­fer­ence speech, Mr McDon­nell an­nounced that Labour would not sign any more PFI deals. He said ex­ist­ing con­tracts were a “waste of tax­payer money” and would be brought “back in house”.

Af­ter his speech the party rowed back on the po­si­tion, say­ing it would “re­view” all PFI deals. How­ever, shadow chief sec­re­tary to the Trea­sury Peter Dowd, later said in a TV in­ter­view that the “bulk” of PFI con­tracts were ex­pected to “come back in”.

An­a­lysts warned that trans­fer­ring so many crit­i­cal as­sets op­er­ated un­der PFI in the UK to state con­trol would be an im­mensely com­pli­cated task.

Mr Hardy said: “The le­gal­i­ties alone would be a vast un­der­tak­ing. The gov­ern­ment would need to ‘re­source up’ to man­age th­ese con­tracts. Each of them is very dif­fer­ent and a sig­nif­i­cant re­source to take back in house what has been put out to in­dus­try over the past 20 years.”

Richard Abadie, a part­ner at PwC spe­cial­is­ing in PFI, said it was fea­si­ble to un­tan­gle PFI deals but it would be a “com­pli­cated” process gen­er­at­ing “not in­signif­i­cant costs”. He added: “It could cost in ex­cess of £1m per project for an ‘easy’ ter­mi­na­tion. The Gov­ern­ment would not have the fi­nan­cial re­sources, nor in­ter­nal peo­ple re­sources, to be able to do a ‘Big Bang’ ap­proach to na­tion­al­is­ing th­ese con­tracts. It would take many years.”

A spokesman for Labour said end­ing PFIs would “de­liver sav­ings to the tax­payer through sav­ings on div­i­dends, high in­ter­est rates and fees”.

He added: “Our pre­ferred op­tion for tak­ing PFIs back in-house is via na­tion­al­i­sa­tion of the spe­cial pur­pose ve­hi­cles that con­tain the PFI con­tracts. The eq­uity value of the SPVs is much less than the £50bn sug­gested here but, as with our other na­tion­al­i­sa­tion poli­cies, prece­dent con­firms it is for Par­lia­ment to de­cide the level of com­pen­sa­tion.”

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