£170bn Private Finance Initiative “rip-off” leading to cuts in public services

From The Morning Star:

£170bn PFI con-trick denounced
(Tuesday 27 November 2007)
by JAMES TWEEDIE

MPs and trade unions attacked the £170 billion private finance initiative “rip-off” on Tuesday.

The present and future governments will have to fork out the massive sum – almost twice the annual NHS budget – to banks, speculators and privateers for 800 PFI schemes, including hospitals, schools and prisons, between now and 2032.

Commons public accounts committee member Richard Bacon MP uncovered the real cost of new Labour’s PFI obsession from Treasury public service and growth directorate managing director John Kingman.

Mr Kingman later claimed that this figure was “meaningless” and tried to spin it in terms of “today’s money” at a mere £91 billion.

PFI schemes involve private companies funding public-sector projects, usually through bank loans or share sales. The public-sector “partner” is then obliged to lease back the hospital, school, prison or other infrastructure over several decades, for many times the initial investment.

PFI schemes have been beset by scandals and disasters, often caused by private-sector corner-cutting. Privateers have also turned the screw on government and local authorities for extra payments once they have won contracts, sometimes up to 26 per cent of the agreed price.

Public accounts committee chairman Edward Leigh MP said: “The process by which PFI projects are tendered has not improved, it has got worse.

“If the public sector is to get value for money, then the market must be truly competitive. What we find instead is that a third of recent projects attracted only two viable bids.”

National Union of Teachers general secretary Steve Sinnott added: “It is no surprise that PFI is the most expensive way to rebuild schools. The government now must urgently review its support for this scheme.”

A spokeswoman for health union UNISON added: “Generations will be paying for this for years to come. It’s like using a credit card to pay your mortgage. These expensive PFI projects should be cancelled.”

Labour MP Ian Gibson stormed: “The public has been completely ripped off, not just in terms of money now but in the future. This is an inheritance of loss to the public exchequer and to our taxes.

“The argument that PFI was the only way to build new schools and hospitals has been exposed,” he insisted.

“It was not the only way. We said so at the time, but we lost the argument because the truth was never fully disclosed to us.

“Ministers hid behind the ‘confidentiality’ of commercial deals.”

And from the BBC website:

Some councils are being forced to cut services because private firms are exploiting a flagship Treasury scheme to push up prices, MPs have said.
The public accounts committee said a lack of competition for private finance initiative (PFI) contracts was making the public sector “vulnerable”.

Committee chairman Edward Leigh said the bidding process had got worse since MPs last examined it four years ago.

But the Treasury said extra investment from PFI had been “worthwhile”.

The committee found that tendering for PFI contracts had to be competitive to ensure value for money.

Rising costs

But a third of recent projects only had two viable bidders, it added. There are 800 PFI contracts with private suppliers, which will be worth a total of £155bn up to 2032.

But the committee said the Treasury had failed to learn lessons from mistakes which were made in the past.

Mr Leigh, Conservative MP for Gainsborough, said: “PFI deals were supposed to give us certainty about the long-term costs of providing public services.

“The reality is different. Benchmarking and market testing of the costs of delivering ongoing services under PFI deals – such as catering and cleaning – have in practice led to increases in prices of up to 14%.”

He added: “The lack of PFI expertise among the public sector procurement teams is resulting in poor negotiating with bidders who often have the whip hand.

“The public sector must not be placed in this vulnerable position.”

Mr Leigh said there were signs that “market interest is weakening, with fewer serious bids for recent deals”.

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