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Unpalatable & uncuttable
How much are the country’s 640 private finance initiative schools, hospitals and the like costing taxpayers… and what can be done to cut the bills? Sadly, “a lot” and “nothing” are the answers.
Non-negotiable payments under PFI contracts are running at more than £8bn on projects with “capital value” (broadly the cost of building the hospital or school) of 363bn. But even these numbers mask the difficulty of coping with PFI in practice.
Hardest hit are education and health. The latter’s budget has £1.2bn in PFI costs to shoulder; and the effect in some trusts has been crippling.
A new Audit Commission report shows six acute hospital trusts in England still burdened by huge deficits despite cuts and efforts at “turnaround”. Much of this is put down to poor financial management, but five of the trusts operate from buildings built and financed through PFI and so are saddled with massive extra costs too. They are:
- Barking, Havering and Redbridge Hospitals trust, which has a £35m deficit accounted for by a £238m PFI hospital costing £45m a year;
- Bromley Hospitals trust (£4.9m deficit; £120m PFI hospital; annual cost: £13m)
- Buckingham Hospitals trust (£2.745m deficit; £45m PFI hospital; annual cost: £13m);
- Queen Elizabeth Hospital trust, Greenwich (£5.5m deficit; £96m PFI hospital; annual cost: £24m)
- West Middlesex University Hospital trust (£3.5m deficit; £96m hospital; annual cost: £12m)
By contrast only one of 130 non-PFI acute hospital trusts has a deficit.
Across government, the full set of PFI deals valued at £63bn will eventually cost taxpayers a whopping £246bn on the Treasury’s latest figures. But with a further 115 scheme valued at £13bn “in procurement”, this, and the annual bill, are already set to rise significantly. Thus, though every political party is committed to spending cuts, unless some very big deals are reneged upon, PFI payments will simultaneously go up.
The deals won’t be pulled because PFI remain politically useful. Despite Gordon Brown’s declaration after the financial meltdown last year that “it was wrong to have off-balance sheet activities”, the Treasury recently announced that PFI will continue to be excluded from government debt figures.
So PFI will roll on regardless and programmes such as the bizarre deal to privatise military training, or the flagship Building Schools for the Future scheme, will not be reined in.
Growth areas are waste treatment, where £2.75bn of rubbish processing is in the PFI pipeline to go with the £1.8bn worth of deals already signed by councils and educations.
As education secretary Ed Balls struggles to find the £2bn savings he has hinted at, and at the same time has to cope with an annual PFI bill of more than £700m, another 33bn worth of schools are being negotiated under BSF, even though the scheme was recently panned by the Commons public accounts committee as ludicrously expensive (but very profitable for the bankers and consultants). These projects will soon cost the schools budget at least a further £400m a year (more than the £250m a year Balls says he will save by cutting senior teachers jobs). And if the full £55bn programme goes through, as remains promised, the soon-to-be-slashed education budget will eventually carry an £8bn annual PFI millstone.
Whether there will be enough left in the pot to teach pupils how not to screw up public finances for their children is as at best uncertain.