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18 January 2018

National Audit Office puts the UK’s PFI bill at nearly £200bn

The government’s own spending watchdog says that outsourcing public services to private companies is 40 per cent more expensive.

By Rohan Banerjee

Taxpayers are set to hand over almost £200bn to contractors for at least 25 years, according to a report by the National Audit Office (NAO).

The independent parliamentary body, which carried out its research prior to the liquidation of public service provider Carillion, found that there was little evidence to suggest that the government’s investment in over 700 existing public-private projects, delivered through the Public Finance Initiative (PFI) and Private Finance 2 (PF2), has represented value for money.

In a PFI or PF2 deal, a private finance company is set up and borrows money to construct a new asset such as a school or hospital. The taxpayer subsequently makes payments to cover running costs over the contract term (typically 25 to 30 years). However, the NAO said that the cost of privately financing public projects can be 40 per cent higher than relying on the government pot alone. The spending watchdog also revealed that the government has a £35m equity stake in one of Carillion’s major projects, meaning public money is now under threat.

PFI contracts were first introduced under John Major’s Conservative government. Their use boomed under Tony Blair’s Labour government, but PFIs fell out of favour after 2008’s global financial crisis, as the price of private finance increased and questions were raised over the costs of using this scheme.

According to the NAO, there are currently 716 private finance deals in operation with a capital value of approximately £60bn. Initial charges for these deals amounted to £10.3bn in 2016-17. Even without any new deals future charges that continue until the 2040s total at £199bn – a sum which the NAO claims could fund the National Health Service for 20 months.

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The NAO’s report comes just hours after the Prime Minister claimed that the government was simply a “customer” of Carillion, which collapsed on Monday, after its involvement in various major public projects.

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Meg Hillier, chair of the Public Accounts Committee, said: “After 25 years of PFI, there is still little evidence that it delivers enough benefit to offset the additional costs of borrowing money privately.”

The Member of Parliament for Hackney South and Shoreditch added: “Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change.”

And at Prime Minister’s Questions on Wednesday, Labour Party leader Jeremy Corbyn urged the government to end the “costly racket” of private sector firms running public services.