Young people starting work this year will pay taxes for the Government’s Private Finance Initiative until they are nearly 70, an investigation by The Daily Telegraph has found.
Private contractors who agreed PFI deals with the Government are set to make billions of pounds in profit.
Private Finance Initiative: hospitals will bring taxpayers 60 years of pain
By Andrew Gilligan
Official figures show that, under Private Finance Initiative [PFI] schemes, British taxpayers are committed to pay £229 billion for new hospitals, schools and other projects with a capital value of just £56 billion. Several contracts are due to run for 60 years, documents released under freedom of information requests show, meaning taxpayers will be paying for the projects for generations to come.
Private contractors who agreed PFI deals with the Government are set to make billions of pounds in profit, with some due to see returns of up to 71 per cent.
In the first of a series of reports, The Daily Telegraph discloses the heavy costs and administrative burdens caused by PFIs. The deals are a way of building large public projects using private finance, which were relied upon by the Labour government. The disclosures will lend weight to MPs calling on PFI companies to refund a share of their profits to the taxpayer.
The PFI deals include:
• A hospital which charged £52,000 for a job that cost £750. Demolishing a shelter for smokers resulted in the PFI contractor charging £2,600 a year for the “extra cleaning”.
• A hospital in Bromley, south London, which will cost the NHS £1.2 billion, more than 10 times what it is worth.
• An empty school which will cost taxpayers £370,000 a year until 2027. Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in.
• Military dog kennels which would have ended up costing more per night than a room in the Park Lane Hilton, London. The deal to replace facilities at the Defence Animal Centre in Melton Mowbray resulted in the sacking of the contractor and the scrapping of the contract.
Under a PFI, a private contractor builds a school, hospital or other asset, then owns it for typically between 25 and 35 years, effectively renting it to the taxpayer for that time. In exchange, the contractor has responsibility for maintenance.
Treasury papers suggest that payments on PFI contracts already signed run until 2048. The Daily Telegraph has uncovered deals, signed in the late 1990s, which include special clauses meaning that they last for up to six decades.
So a 21 year-old leaving university this year will pay taxes for the PFI until they are almost 70. By then, some of the facilities will have been obsolete for years. Political pressure on the PFIs, introduced by John Major but greatly expanded when Gordon Brown was chancellor, was mounting last night after The Telegraph established the scale of profit-making by some of those involved.
An almost unknown City company, Innisfree, with only 14 staff, is the largest single player in the PFI market, owning or co-owning 269 PFI schools and 28 hospitals.
According to accounts filed at Companies House, Innisfree’s profit margin was 53 per cent last year. A successful FTSE 100 company makes margins of around 6 per cent. David Metter, the founder and chief executive of Innisfree, owns almost three-quarters of the company and collected pay and dividends of £8.6 million last year.
“Innisfree have made money like it is going out of style,” said Jesse Norman, the Conservative MP for Hereford. “A tiny number of individuals have made more money for less work than any other group of people I can think of.” Innisfree said its directors were at a conference in Chamonix yesterday and unable to comment. There is no suggestion that Innisfree has done anything improper or illegal.
Mr Norman heads a new cross-party group of MPs demanding that Innisfree and other PFI beneficiaries return a portion of their profits to the taxpayer. “It’s a scandal that so many projects have been so expensive to the taxpayer,” he said yesterday. “There is a great deal of excess value in the PFI which should properly be shared with taxpayers.”
Labour’s last health secretary, Andy Burnham, who was in charge of 221 PFI projects, admitted last year: “We made mistakes. I’m not defending every pen-stroke of the PFI contracts we signed.” Innisfree co-owns the Princess Royal University Hospital in Bromley, opened in 2003, which cost an estimated £118 million to build and equip according to Treasury figures. However, Treasury calculations seen by The Daily Telegraph indicate the NHS will have paid Innisfree and its PFI partners a total of £1.21 billion for the hospital over the 35-year life of the contract, but this does include support services. The National Audit Office says the deal will produce a return for the PFI contractors of 70.6 per cent.
Jean Shaoul, a professor of public accountability at Manchester University Business School, said using the private sector as an intermediary to raise finance to build hospitals and to run them is “far more expensive than if the Government were to do it itself”. Carl Emmerson, the acting director of the Institute for Fiscal Studies, said: “Where you can be very confident about the service you want for the whole period of the contract, as with a road, it can work. In schools and hospitals, where needs change, it’s much harder to get value for money.”
In Belfast, a school closed after seven years but the PFI contractor must be paid £370,000 a year for the next 16 years.