Councils’ ‘pay later’ schemes leave huge bill
PFI contracts cost the taxpayer £13bn
TAXPAYERS HAVE been left with a £13bn bill for contracts signed by Yorkshire councils to build and maintain new schools, homes and waste facilities paid for under the controversial private finance initiative, The Yorkshire Post can reveal. Town hall bosses across the region have entered into a raft of ‘buy now, pay later’ agreements since the turn of the century using PFI, under which private firms fund the upfront costs of new buildings and are paid back over the next 25 years or more.
The majority of Yorkshire’s local authorities will be paying back millions of pounds a year in ‘unitary charges’ and other expenses well into the 2030s, by which time the total spend will dwarf the original construction costs.
Critics argue that PFI, which became widespread after Labour took power in 1997, is a more expensive way of funding public schemes than simply borrowing.
Many of the contracts end up being heavily subsidised by central government, prompting questions about whether they constitute good value for money for the public purse.
But supporters say the contracts bring many benefits, with the private contractor taking on the risks involved with a major project as well as providing maintenance and management of the new building. In total, 14 of the region’s local councils have signed PFI deals, with four – Leeds, Sheffield, Bradford and Barnsley – negotiating contracts for more than £1bn of tax-payers’ money.
Leeds City Council has signed 14 contracts, which will see more than £3bn paid back by the end of the final agreement in 2041 and a payment of £109m made last year alone.
Officials say that because central government pays for around two thirds of these costs through PFI credits, the council has got an “incredibly good deal” from the arrangement. The council’s deputy leader James Lewis said: “People aren’t just local taxpayers, they are national taxpayers as well, and there are some questions for central government about whether they secured the best value and took the best approach.”
Among the most controversial PFI schemes is Sheffield City Council’s £2bn Streets Ahead highway maintenance contract with Amey. It was claimed in court this week that healthy trees in the city were felled, causing widespread protests, because it was the most profitable option under the contract.
Dexter Whitfield, an analyst from the European Services Strategy Unit think-tank, said council leaders were effectively “put over a barrel” in the late 1990s and early 2000s and were forced to use PFI if they wanted to fund the building of new schools.
He said: “There has always been criticism of PFI; some of us have been arguing for a long time that it is a bad policy. Politically if you are a locally elected member and build 15 new schools you can brag about it, it has political value.”
IT WAS described as ‘the only game in town’ for local council leaders wanting to pay for ambitious infrastructure projects in the years after Labour seized power in 1997.
But the private finance initiative scheme, or PFI, now has a disastrous reputation, damaged in the public consciousness by a succession of negative headlines and eye-watering costs to the taxpayer.
Across Yorkshire, the fruits of such ‘enjoy today, pay tomorrow’ contracts taken out by local councils are there for all to see.
Dozens of new school buildings around the region owe their existence to PFI, as do leisure centres, health centres, hundreds of council homes and several major waste recycling centres, built to end the expensive process of sending rubbish to landfill.
But analysis of the contracts by The Yorkshire Post reveals that there is a hefty bill to pay for this spending, even if some of it is borne by central rather than local government. All told, PFI contracts drawn up by Yorkshire’s town halls will see more than £13bn paid out to the private firms that finance them, a total several times higher than the capital value of the projects.
Fourteen local councils have signed such contracts, under which private firms are paid to build and often manage or maintain the facilities before leasing them back at the end of 25 years or so, with the costs, crucially, remaining ‘off balance-sheet’, meaning they don’t show up as part of the national debt.
Concerns about the terms of the deals, which have made billions of pounds in profits for private contractors, have been emerging for years.
As well as committing public authorities to expensive repayments well into the 2030s and beyond, many involved exorbitant catering, cleaning and maintenance agreements.
When asked about the use of PFI contracts, council leaders in Yorkshire are often less than enthusiastic about having to take this approach, but suggest they were left with no choice.
And though many of the contracts are subsidised by central government in the form of PFI credits, local officials question the value for money they represent for the public purse.
Officials in Leeds, where the city council has signed contracts worth £3bn – £2bn of which comes from government credits – cite a number of examples of benefits from 14 PFI projects.
A long-delayed housing scheme for the Little London, Beeston Hill and Holbeck areas saw the construction of 400 new homes, the refurbishment of hundreds more and their maintenance, to a high standard, over 20 years, for a net cost of £21m.
Neil Evans, director of Resources and Housing at Leeds City Council, said: “The alternative for us is that we would have had to have borrowed, and we would have had to find all that money to manage it over that period. For the council taxpayer it has been an incredibly good deal.
“There is a separate question about whether the funding of PFI nationally is always the most sensible thing to do.”
Stewart Golton, leader of Leeds’ Liberal Democrat group, is less positive. “PFI was the only game in town under Blair and Brown,” he said. “If you didn’t join in you didn’t get any funding. Councils had restrictions on what they could do with their finances.
“It looked good on government debt spreadsheets because it was spread over 30 years, and Number 10 could roll out new hospitals, roads and streetlights.
“They were warned that PFI was enjoy today, pay tomorrow, and unsustainable. Now councils can borrow on historically low interest rates to invest in infrastructure, the folly of the PFI is laid bare as that debt is locked in just at the time when councils are struggling to keep services going.”
PFI expert Dexter Whitfield, director of the European Services Strategy Unit think-tank, says arguments made for why PFI represented best value for money were often flimsy. He says the process is costlier than public debt, with interest paid at twice the rate. “If you take that over 25 years it will ratchet up on a large scale,” he said.
ON MONDAY IN THE YORKSHIRE POST CALLS FOR TRANSPARENCY ON BIG-MONEY CONTRACTS