The Lost Billions investigation: Authorities stuck with useless - but costly - buildings they cannot sell

Controversial ‘private finance’ deals have left some public bodies stuck with costly buildings they are no longer using but cannot sell, we can reveal.

Monday, 14th October 2019, 12:12 pm
The Mountainhall Treatment Centre

In one case, an NHS maternity unit built and run through a Private Finance Initiative (PFI) scheme was closed after just 16 years but is still costing the taxpayer millions of pounds, JPIMedia Investigations has found.

The Cresswell unit in Dumfries is now undergoing a multi-million pound conversion after the local health board abandoned an attempt to extricate itself from the deal.

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READ MORE:: Private Finance Initiatives (PFIs) explained in easy terms

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The Scottish Government said it had “concerns around the flexibility and the value for money offered by historic PFI contracts”.

Meanwhile, Sussex Police is trying to find a new use for a custody suite which has not been used since November, due to a shortage of demand.

The facility is one of six custody suites the force pays a private company millions of pounds to run each year.

Police and Crime Commissioner Katy Bourne has said that “with the benefit of hindsight”, it would not agree to a similar deal today.

Restrictive contracts are also leaving many authorities facing eye-watering costs for basic maintenance jobs, we can reveal.

This includes a school charged £25,471 for three parasols, a hospital billed £5,334 for a new sink and a police force which paid £884 for a chair.

The Private Finance Initiative sees private companies build and run key infrastructure, leasing it to the public sector through deals usually lasting 25 to 30 years.

The agreements often include services such as maintenance and cleaning, but critics say this can leave public bodies paying high prices for basic changes to their buildings.

Unite the union’s assistant general secretary Gail Cartmail said: “Using PFI contracts are like an individual using a credit card, but, in the case of PFIs, it takes 20 to 30 years to pay off the debt – this is not an effective use of taxpayers’ money.

“We have all heard similar stories to the one of a police force being billed £884 for one chair - we really need to put a stop to this outrageous waste of public money.”

Megan Waugh, a researcher at the University of Leeds who is studying PFI, said: “These ‘extra charges’ are incredibly common and a complete rip-off.

“Public authorities trapped in PFI contracts are forced to use the PFI contractor who can and do charge over the odds for basic maintenance and repairs such as £24,000 to adapt a disabled toilet.”

The Treasury said it was supporting health authorities to manage the costs of old PFI deals.

Council leaders in the early 2000s had little choice but to sign PFI contracts if they wanted to secure investment for their areas, according to one former chief.

Mick Young was instrumental in forming deals to build dozens of new schools and care homes during his time as Labour leader of Northamptonshire County Council from 1998 to 2004, but years later these decisions came under intense scrutiny when the authority went effectively bankrupt last year.

He said: “If the county had have been allowed to raise the money in a more traditional capital borrowing way, I would have preferred to have done that.

“But the Government would have said ‘no chance’.”

However, a national campaign group believes the public has every right to point the finger of blame at those who signed off on the PFI deals in the early 2000s.

Joel Benjamin, co-founder of The People Versus PFI, said: “Somewhere along the line the consultants that provided the advice on these deals, suggesting they represented value for money need to be held up to the spotlight - and to some extent, the councillors and commissioners that signed off on PFI deals need to be held to account also.”

The Private Finance Initiative: A timeline

1992: The Private Finance Initiative is born under John Major’s Conservatives.

1995: Britain’s first PFI project, Scotland’s Skye Bridge, opens. Within a decade, a public outcry over its high toll charges had forced the Scottish Executive to buy the bridge off its private owners at a cost of £27m.

1997: Two months after New Labour sweeps to power, Health Secretary Alan Milburn announces it is “PFI or bust” for the funding of infrastructure. Use of the model soars through the Blair and Brown years.

2007: The value of PFI deals peaks, with private companies investing £8.6bn in public infrastructure that year.

2008: Use of PFI falls in the wake of the financial crisis.

2011: The year after the Coalition government comes to power, two Parliamentary committees heavily criticise PFI. The Public Accounts Committee suspects companies are making excessive profits from the schemes, with chair Margaret Hodge MP warning that “tax revenue is being lost through the use of off-shore arrangements by PFI investors”. Meanwhile, the Treasury Committee finds the full cost of a hospital built under PFI is set to be 70 per cent higher than a publicly funded one. Committee chair Andrew Tyrie MP says they “can’t carry on as we are, expecting the next generation of taxpayers to pick up the tab”.

2012: Chancellor George Osborne relaunches the model as PF2, run in a similar way but with more details of the deals to be made public.

2018: Howard Davies, the chairman of Royal Bank of Scotland - itself a PFI investor - calls the model a “fraud on the people”. The National Audit Office publishes a report finding little evidence of its benefits. Later that year, Chancellor Philip Hammond abolishes PFI but old schemes remain in place.