The done deals that will cost us all a fortune
The rush to enlist private finance to fund public building projects will cost taxpayers, their children, and their children’s children billions.
Most basically, the Private Finance Initiative (PFI) works like a mortgage where public bodies get a new school, college or hospital up front for nothing then repay the costs to the private backers who built it over 25 or 30 years.
All risk is, supposedly, held by the private financiers but hundreds of projects were badly negotiated so this was not always the case and many consortiums have made a fortune from refinancing their loans but not sharing the spoils with the taxpayer.
Estimates suggest the total cost to taxpayers of Scotland’s privately built schools, roads and hospitals will hit
£36 billion for projects that cost £8 billion to build.
The Tories started PFI but Labour championed the idea after coming into power in 1997. The SNP signed off on deals that will see the public pay £6 billion for projects that cost a third of that.
To make PFI the only game in town, the taps had to be turned off on traditional ways of funding schemes, such as public bonds or loans, and there was a big push on selling the fact it was “off the books”.
For example, instead of say £25 million appearing on a council’s balance sheet to build a new school, they only had £800,000 in that year’s repayments for the school.
One of the first deals was The Royal Infirmary of Edinburgh, which cost £184 million to build, but will see NHS Lothian pay back £1.6 billion in repayments and fees until 2034.
There are 350 privatelyfinanced schools in Scotland and concerns have been raised about build quality and fire safety standards in many.
Overall repayments for PFI buildings in Scotland topped £1 billion last year but a new version of the funding model, which pays out less in profits to private finance firms, means there are decades of payments to private financiers left for the public purse north of the Border.