For years, campaigners have been saying that the Private Finance Initiative, or PFI, has been draining public services via huge repayments of interest and service charges.
The contracts, many of which have been sold on to offshore finance companies, were originally brought in by the Labour Government of Tony Blair but at yesterday's Labour Party Conference in Brighton, Shadow Chancellor, John McDonnell, promised to end the rip-off.
McDonnell insisted that a Labour Government would sign no more PFIs or similar arrangements..."We'll put an end to this scandal and reduce the cost to the taxpayers" he said "How? We have already pledged that there will be no new PFI deals signed by us. But we will go further. I can tell you today, it's what you've been calling for. We'll bring existing PFI contracts back in-house."
Both cash-strapped Salford City Council and Salford Royal NHS Foundation Trust are mired in PFI debt.
Having already paid millions of pounds back to PFI finance vehicles Salford Council still has a total of £835.34million liability in repayments, interest and service charges over the next thirty years, according to its latest accounts. £257million of the total is for interest alone.
This year Salford Council has set aside a total of £34.7million to pay for PFI, including £17.49million in interest.
The Council currently has PFI contracts for schools and the Pendleton Together refurbishment of properties, with interest rates of between 8% and 10%.
The school contracts are for the building and maintenance of three special high schools, seven high schools and one primary school.
The PFI for the first two high schools, begun in 2009 and over 25 years, will see total payments of £229million, including interest and maintenance, when the actual building cost was £55.6million.
In 2011, Salford Council began another 25 year PFI contract to build three more new schools. Government figures show that the capital cost was £69.9million, with the final cost a staggering £274.4million.
Originally both contracts were with a SPV (Special Purpose Vehicle) called S & W TLP (Project Co One and Two), in which companies Hochtief and Lang O'Rourke held an 80% stake, with Salford Council and Amber Infrastructure holding 10% each.
Between four and five years later, however, Hochtief and O'Rourke had sold their stake to HICL Infrastructure, an offshore company based in the tax haven of Guernsey, which has continued to reap huge profits from the contracts.
Over the remaining years of both contracts, the Council is committed to making payments of £430million, supported by Government grants of over £276million, but still having to find £153.373million – for schools that cost around £125million to build in the first place.*
The eye watering costs are matched by the Pendleton PFI, for which the £78.7million original capital cost will end up costing over £430million by the time it's finished. This year, the total Pendleton PFI cost to Salford City Council will be £5.971million, a rise of almost £400,000 on last year.**
Meanwhile, Salford Royal NHS Foundation Trust has its own PFI for the new blocks added onto the hospital. By the time the PFI is over, in 2042-43, the total payments for the project are estimated at £705million – from an initial £137million capital cost.
In 2015, accounts show that the Trust was paying £5.37million in interest alone. Stretched over the 34 years of the PFI this would mean that the Trust was paying £170million just in interest – more than the original £137million cost of the new blocks.***
Similar to the schools, the PFI contract for Salford Royal has been sold on. In July 2013 Balfour Beatty sold its 50% holding in the Consort Healthcare SPV to HICL Infrastructure Company Limited for £22million, generating a profit of £11.5million...
HICL Infrastructure Company Limited is registered in the offshore tax haven of Guernsey, and at the time of the sale, Balfour Beatty was getting an annual rate of return of 18.8%, according to the European Services Strategy Unit, which is studying and producing reports on all the country's PFI projects.
Today, the campaign group, The People vs PFI, welcomed John McDonnell's speech...
"It's a scandal that hospitals and schools make cuts to staffing and services, while extortionate repayments they are due to pay on their PFI contracts are ring-fenced, even subsidised by Central Government" said The People vs PFI campaigner Joel Benjamin
The campaign argues that there's two ways to bring PFI contracts back in-house: nationalising the Special Purpose Vehicles, and buyouts.
"Buyouts are hugely expensive and private investors can walk away with their money early to invest in more PPPs" it states "Nationalising the SPVs puts the government, not private companies, in a commanding position, the contracts will automatically become public and various forms of profiteering can be ended.
"Nationalisation would not be hugely costly" it adds "In reality, it is the extortionate cost of present PFI financing arrangements that must be fully scrutinised. UK taxpayers cannot be expected to pay full price when ending PFI contracts: poor building quality and fire safety failings evidenced by Edinburgh Schools, Peterborough Hospital and Chalcots Estate, tax avoidance, interest rate rigging by PFI lending banks and excessive profit extraction must all weigh in the final account."
In the meantime, the scandal of PFI is now on the political agenda...
"….Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens" said McDonnell "The government could intervene immediately to ensure that companies in tax havens can't own shares in PFI companies, and their profits aren't hidden from HMRC..."
For a full background into the Salford PFI projects see previous Salford Star articles...
*For school PFIs – click here
*For Pendleton PFI – click here
*For Salford Royal Hospital PFI – click here and click here