Taxpayers are shelling out £10billion a year on PFI fees and shafted by shoddy Government deals, report reveals
Ministers under pressure to review PFI deals after damning report finds taxpayers shell out £10bn per year for Private Finance Initiatives
MINISTERS came under fresh pressure to review PFI after a damning report found taxpayers are spending £10billion a year on fees.
Amid a growing row over the use of Private Finance Initiatives in the wake of the Carillion collapse, the Government’s spending watchdog warned that taxpayers are facing a soaring bill to pay for external advisers, lender fees and spiralling insurance costs.
It means the total bill to private contractors will reach £199bilion for schemes under PFI - even if no further deals are struck.
The National Audit Office (NAO) found 716 deals are currently operational under PFI and its successor PF2.
Under the schemes private consortiums raise funding to build public facilities like schools, hospitals and roads, in return for regular payments over as many as 30 years.
The NAO report delivered a damning verdict on the Treasury for failing to set out what benefits PFI brings in terms of savings for the taxpayer. As a result the NAO was unable to draw any conclusions on the merits of PFI and PF2.
The report was compiled before the collapse of contractor Carillion. But its release came as the construction giant’s failure sparked furious debate about the future of a system which Labour leader Jeremy Corbyn denounced as a “costly racket”.
He told Theresa May at Prime Minister’s Questions in the Commons yesterday that corporations contracted to build public projects must be “shown the door”.
He said: “We need our public services provided by public employees with a public service ethos and a strong public oversight.”
The GMB union said the scale of payments revealed by the NAO should mean the “game is up” for PFI - declaring it a “waste of taxpayer’s money”.
The NAO report found that the private finance route “results in additional costs compared to publicly financed procurement”.
The Government’s National Infrastructure Plan suggested in 2010 that capital raised through PFI cost 2 per cent to 3.75 per cent more than from state borrowing, the NAO said.
And it added: “Small changes to the cost of capital can have a significant impact on costs.
“Paying off a debt of £100 million over 30 years with interest of 2 per cent costs £34 million in interest. At 4% this more than doubles to £73 million.”
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The report said there had not yet been a “robust evaluation” of whether this was offset, as PFI supporters claim, by benefits such as reduced risk to the taxpayer and higher-quality facilities.
The chair of the influential House of Commons Public Accounts Committee, Meg Hillier, said there was “little evidence” that PFI was delivering value for money 25 years after it was launched by John Major.
She said: “Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change.
“I am concerned that Treasury has relaunched PFI under new branding, without doing anything about most of its underlying problems.
“We need more investment in our schools and hospitals but if we get the contracts wrong, taxpayers pay the price.”
Shadow Chief Secretary to the Treasury Peter Dowd MP said Labour would “draw a line under the failed PFI approach” and replace it with a “transparent and accountable approach, which will reduce the costs and deliver significant savings to the taxpayer”.
Carillion pay veto
LAVISH bonuses to directors and former executives at collapsed construction giant Carillion have been stopped.
The move came amid a furore about bumper payments to executives who had been in charge as the failed firm headed for the rocks.
The Insolvency Service said payments, including those included in severance packages for former executives, had been halted after the firm went into liquidation on Monday.
Its dramatic collapse has left thousands of employees and 30,000 sub-contractors in limbo.
Carillion’s former chief executive Richard Howson pocketed £1.5 million in salary, bonuses and pension payments during 2016. As part of his departure deal, Carillion agreed to keep paying him a £660,000 salary and £28,000 in benefits until October.
Former finance chief Zafar Khan, who left Carillion in September, was due to receive £425,000 in base salary for 12 months.
Interim chief executive Keith Cochrane was due to be paid his £750,000 salary until July, despite him being due to leave the company in February.
An Insolvency Service spokesman said yesterday: “Any bonus payment to directors, beyond the liquidation date, have been stopped and this includes the severance payments which were being paid to some senior executives who left the company.”
Prime Minister Theresa May has indicated that it may be possible to claw back bonuses that have already been paid, she indicated.
“The Official Receiver does have the power to ensure that, in reviewing payments to executives, where those payments are unlawful or unjustified he can take action to recover those payments,” the Prime Minister said.
Labour leader Jeremy Corbyn told MPs there was “one rule for the super rich, another for everybody else” and asked Theresa May to guarantee that “not a single penny more will go to the chief executive or directors of this company”.
A Government spokesman said: “Many vital infrastructure projects like roads, schools and hospitals are paid for by PFI and PF2, stimulating our economy, creating jobs and delivering better public services.
“We have reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money.
“Taxpayer money is protected through PFI and PF2 as the risks of construction and long-term maintenance of a project are transferred to the private sector.”