Controversial private sector deals loved by Labour axed
CONTROVERSIAL Private Finance Initiative schemes used to build schools, hospitals and police stations were killed off by Philip Hammond yesterday.
In an unexpected move, the Chancellor called time on the PFI deals, which see firms receive payments for decades after construction is completed.
However, despite his announcement, Whitehall and local councils are still tied into at least 700 deals under PFI and its successor PF2 – some 90 per cent of which were signed off by Tony Blair and Gordon Brown’s governments.
A report by the National Audit Office, Britain’s spending watchdog, found in January that the country would be saddled with a staggering £199billion of debt from such contracts until the 2040s.
Under the deals, firms receive longterm payments for financing, constructing and servicing buildings.
One example of local authorities being locked into exorbitant contracts has seen schools paying more than £8,000 for a single window blind, and £2,000 for a new tap.
PFI was introduced by John Major but embraced by the Labour governments that followed. Mr Hammond said he was abolishing the use of the programme for future schemes as he vowed to put another botched ‘legacy of Labour behind us’.
His pledge to ban the funding model came after the collapse of construction giant Carillion earlier this year, which cost 1,000 jobs and left a question mark over many unfinished PFI projects.
Mr Hammond said: ‘In financing public infrastructure I remain committed to the use of publicprivate partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector. But there is compelling evidence that the Private Finance Initiative does neither.’
He said Shadow Chancellor John McDonnell ‘rages against PFI at every opportunity’ but never mentioned that nine out of ten contracts were agreed by the last Labour government.
He added: ‘Labour’s policy is to terminate all these contracts, triggering the ruinous penalty clauses that they themselves agreed to in the first place, adding tens of billions more to that already enormous bill. A classic Labour solution – pouring good money after bad. I will not do that. We will honour existing contracts. But the days of the public sector being a pushover, must end.
‘I have never signed off a PFI contract as Chancellor and I can confirm today that I never will. I can announce that the Government will abolish the use of PFI and PF2 for future projects.’
The NAO’s report, published in January, warned that it was impossible to tell whether PFI was good value because the Treasury was unable to prove whether they had saved money.
It could also not say whether projects were more successful than they would have been if funded entirely by the State. The report said 700 ‘operational’ PFI deals had a total ‘capital value’ of £ 60billion – but taxpayers would be charged a total of £199billion for them, with bills continuing until the 2040s.
Manish Gupta of outsourcing firm EY said: ‘ The abolition of the initiative was unexpected.
‘ With a huge infrastructure backlog in the UK, the Chancellor seems to have closed his options for a potential source of financing, which means the Government will need to commit to substantial public funding to ensure continuity of programmes directly impacted by the announcement.’