Revealed: the scandal of Scottish PFI projects moved to tax havens
BY JUDITH DUFFY
ALANDMARK scheme pioneered by Gordon Brown in 1992 has seen more than 40 private finance projects in Scotland – including roads, schools, hospitals and prisons – moved into offshore tax havens, resulting in a massive loss of tax revenues to the UK Treasury.
Analysis carried out by think tank the European Services Strategy Unit (ESSU) found the majority of equity in many PFI projects is now owned by offshore funds.
In Scotland, the unit reports that there are 19 projects – such as Forth Valley Hospital, Perth and Kinross schools and Edinburgh schools – listed as having 100 per cent equity owned by firms based in Jersey, Guernsey and Luxembourg.
Another 23 projects have at least 50 per cent equity owned by infrastructure funds, which offer investment opportunities in vital public assets, based in these tax havens, according to the report. It also points out that five of the largest offshore infrastructure funds – including HICL in Jersey, John Laing in Guernsey and Bilfinger Berger Global Infrastructure (BBGI) in Luxembourg – made a total profit of £1.8 billion between 2011-15, but overall zero tax was paid when tax credits were included.
It is estimated this represented a potential loss of £400 million in UK tax revenue, had the companies been based in the UK.
HICL and John Laing declined to comment on the report, while BBGI did not respond. The report also reveals that Scotland has a far higher rate of PFI projects, at 18 per million of population compared to the UK average of 12.4 per million.
The issue of private finance initiative, also known as public private partnership (PPP) schemes, came under scrutiny earlier this year following the closure of 17 PFI schools in Edinburgh due to building safety fears. An inquiry is under way and is due to report in December.
Dexter Whitfield, director of the ESSU, said there were questions over the “profiteering” going on from PFI schemes.
Across the UK, the report found the total value of PFI equity transactions totalled £17.1bn in mid-2016, an increase of 42 per cent in less than four years. He said: “A lot of people say ‘what does it matter’, but I think it is a problem as PFI is already the most expensive way of building schools and hospitals. That has been well-established over a number of years.
“Then at the other end of the scheme, there are all these people making further profits out of it.”
PFI was introduced in 1992 by then chancellor Gordon Brown as a way of financing public-sector infrastructure projects. When a PFI scheme is first set up, the contract is signed between a public body and a Special Purpose Vehicle (SPV) – a consortium of private-sector investors. But companies can then sell on the value of their equity to other firms, meaning the ownership of the SPV can change.
In 2011, an investigation by the House of Commons Public Accounts Committee found investors had made bumper profits from buying up contracts and taking the proceeds offshore.
Whitfield said the PFI programme should be terminated and replaced by direct public investment, but acknowledged it was a “tall order”.
He argued another solution would be to nationalise SPVs to stop the trade in PFI equity. “It is those radical things that have to bring change,” he added.