PFI: A History of Failure

Mar 28, 2011

PFI under New Labour became more about neoliberal dogma than efficiency or any benefit to the public.

In January the parliamentary public accounts committee echoed some of the criticisms campaigners have being raising for years. The MPs’ committee said in its review, there was no evidence PFI offers better value for money than other types of funding. The report said:

“There were instances where PFI may have been used where there was no evidence that it was the best procurement route. Local authorities and health trusts used PFI because there was no realistic alternative, not because it represented best value for money.”

But these objections are hardly new. PFI has faced criticism for the cost to the tax-payer, the inefficiency and the loading of risk onto public bodies, from the policy’s inception in the early 1990s. In 2001 the Blairite MP and former local government accountant, David Taylor said:

David Taylor: rare honesty for a Blairite

“Every penny raised for PFI schools, hospitals and prisons … is paid for by the public purse, plus interest, plus profits. PFI does not lever in private finance. It merely allows private shareholders to dip their large ladles into an increasing stream of tax revenue. PFI projects cost much more than conventionally funded projects”, and the costs are “boosted by lengthy negotiations with expensive City lawyers, consultants and fine wines employed by both sides. “The public sector’s motivation is social responsibility, while commercial firms have a responsibility to their owners and shareholders with obligations to clients and customers some way behind.”

 

And, the recent history of PFI projects has proved critics right.

M25 expansion

Last year a National Audit Office investigationinto the M25 motorway expansion found costs to the taxpayer increased by 25%because of delay in awarding of the contract.

The NAO launched their investigation in response to concerns the 30-year deal between the Highways Agency and the Connect Plus consortium, would not provide value for money.

An 18-month delay awarding the contract meant the deal was finally struck in May 2009, at the height of the credit crunch and market turmoil. This meant increased costs of borrowing for the consortium increased the project’s final bill by £660m to £3.4bn. A cost increase which was passed on to the Highways Agency, and ultimately, the taxpayer.

The Connect Plus consortium is made up of Atkins, Balfour Beatty, Skanska; and Egis. The M25 widening project, thought to be one of the top ten most expensive PFI deals, is due for completion in July 2012.

Mortgaging the NHS

Last August the BBC revealed the extent of repayments the NHS is committed to after more than a decade of PFI hospital building projects.

The NHS will pay £65.1bn to private contractors for 103 schemes originally valued at £11.3bn. Some local NHS trusts’ PFI repayments now take up more than 10% of their annual turnover with many contracts lasting around 30 years.

The figures show that the NHS’s annual payments are rising.  Currently, the health service pays £1.25bn per year. But, this figure rises annually until 2030 when it will reach £2.3bn. payments are due to continue until 2048.

With fees rising every year, all that taxpayer cash being handed to private companies is money not being spent on patient care or hospital staff.  And, as budgets are cut and NHS trusts are forced to look for “savings”, these payments will make closures and cuts more likely.

Education

A 2003 report by the public sector workers’ union, Unison, highlighted some of the failures of PFI in the education sector.

The study exposed the usual PFI failures; higher borrowing costs; higher set-up costs as expensive lawyers and consultants are employed to oversee lengthy contract negotiations; the cost of large profit margins demanded by private sector contractors; higher construction and running costs; and the tendency for PFI costs to escalate before contracts are signed.

The report also looked at the affordability gap. Inadequate PFI contracts where Local Education Authorities are left to make up for underfunding, mean money is diverted from services. The Unison report cites several examples:

“Haringey schools: In order to keep costs down, the PFI contract with Jarvis excluded the cost of furniture and equipment, wheelchair access and comprehensive IT provision. This was estimated to be £3.7 million for the eight secondary schools involved. The government agreed to pay just over £2m of this shortfall. The rest of the money has been taken from other parts of Haringey’s budget.”

“Wiltshire: Three new schools opened under a £60m PFI deal in 2001. One year later, £250,000 extra was needed to deal with a host of problems.. The LEA is footing the bill as the consortium is refusing to pay.”

“Glasgow: This council was forced to subsidise community use of school sports facilities. Prices rocketed to unaffordable levels after they were taken over by 3ED Consortium in a £1.2bn PPP deal.”

MOD PFI ICT

Figures obtained last year show the Ministry of Defence spent £10.1bn on ICT between 1997 and 2009.

“In 2007-2008 of the total £1.1bn ICT bill, approximately 43 per cent was spent on the PFI service charge.”

In 2008 the MOD was accused “throwing away millions”of taxpayers money on poorly designed PFI projects. The criticism came in response to a report by the National Audit Office highlighting the MOD’s tendency to back out of PFI projects. The NAO report also criticised the length of time taken to complete PFI projects.

Nick Harvey, the Lib Dem defence spokesperson at the time, said: “The MoD appears to be signing up to PFI schemes without thinking, then throwing away millions abandoning them years later,”

The Defence Fixed Telecommunications System PFI project hit the headlines in 2008 when it was revealed staff working for the private contractor, BT, had been using the ICT system to phone each other to meet MOD call answering targets.

BT staff working on the £3bn deal to operate the MOD phone system, called each other to avoid fines.

BT were forced to pay £1.3m in compensation to the MOD when the scam was revealed.

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