Taxpayer may have to pay £170bn for PFI schemes, says Treasury

· Committee of MPs says problems getting worse
· CBI backs concerns in survey of contractors

David Hencke, Westminster correspondent
Guardian, Tuesday November 27, 2007

The huge cost to the taxpayer of Labour's commitment to the 
private finance initiative since it came to power a decade ago 
is revealed by the Treasury in a report by MPs published today. 
It shows that Gordon Brown has committed future governments to 
pay back £170bn by 2032 to banks, investors and private 
entrepreneurs for more than 800 schemes for new hospitals, 
schools and prisons.

The figure was drawn from John Kingman, managing director of the 
Treasury's public service and growth directorate, by 
Conservative MP Richard Bacon, a member of the Commons public 
accounts committee. In a letter to the committee Kingman argued 
that in one sense the figure was "meaningless", and suggested it 
could be lower if presented in a different way, but even this 
revised figure came to £91bn.

Kingman said: "I am obviously uncomfortable providing the 
committee with a figure which is meaningless and I would not 
want the committee to be in any way misled about this. A more 
meaningful exercise would be to take the stream of future 
payments ... and to aggregate them as at present value. If one 
were to do this one would end up with total future payments 
under the PFI measured in today's money which aggregate to £91bn."

Bacon said yesterday: "This figure reveals for the first time 
the full cost of PFI under this government. Obviously when 
inflation and interest rates are taken into account, sums due to 
be paid in future years will be less than today. But officials 
cannot get away with the fact that this figure is the actual 
cash bill future governments will have to pay for the whole PFI 
programme."

The disclosure comes after a spate of criticisms of PFI schemes, 
from Norwich and Norfolk hospital which proved to be too small 
to meet demands, to consortiums making huge profits from 
refinancing PFI deals, the most notable being Fazakerly prison 
near Liverpool where a consortium got virtually all their money 
back by refinancing the scheme.

The MPs' report also warns that bids are becoming more 
uncompetitive, are taking longer to go ahead, and public 
officials are often incapable of challenging bidders when they 
put in for big increases, some as high as 26%. In the worst 
cases, public services are being cut back to pay interest 
charges. Examples include closing hospitals beds and cutting 
back porters at Darenth Valley hospital in Kent and dropping 
promised improvements at the Queen Elizabeth hospital in 
Greenwich, south-east London, to pay increased bills. Edward 
Leigh, chair of the public accounts committee, 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.

"The average length of tendering time is now nearly three years. 
Schemes are thereby delayed and market interest weakened because 
the costs of making a bid are driven up. And the lack of PFI 
expertise among the public sector procurement teams is resulting 
in poor negotiating with bidders who often have the whip hand. 
PFI deals were supposed to give us certainty about the long-term 
costs of providing public services. The reality is different."

The MPs' concern was backed by the CBI, which generally supports 
PFI schemes. Neil Bentley, the CBI's director of public 
services, said: "In a survey of PFI contractors, the business 
lobby group found that changed orders, delays and added costs 
were common. In answer to a question as to what respondents' 
companies have experienced from the PFI, 69% said they had 
experienced changed specifications by the contracting authority 
before contracts were signed; 49% said they had experienced 
changed specifications by the contracting authority after 
contracts were been signed; 78% said they had experienced 
avoidable delays on the part of the procuring authority; and 76% 
said they had experienced higher than expected bid costs."

The acting Liberal Democrat leader and shadow chancellor, Vince 
Cable, said: "Time and again the government has proved itself 
woefully bad at putting PFI contracts out to tender.

"The government's record on dealing with big projects, such as 
those in HM Revenue and Customs and the undervaluation of 
QinetiQ, show that ministers just don't have the competence to 
get value for money in these negotiations."


http://politics.guardian.co.uk/economics/story/0,,2217643,00.html