Wigan bucks the trend by investing INTO controversial PFI scheme - but it was scrapped by the government

Wigan Council bucked the trend by investing in a Private Finance Initiative (PFI), rather than just taking one out.

Wednesday, 16th October 2019, 12:11 pm
The Wigan Life Centre, in College Avenue, was built through a PFI project. Its a 26-year contract with a capital value of 50.5m, with repayments set to total 222.9m.

The authority put cash into a company set up to build schools across Wigan and Salford as part of the national Building Schools for the Future programme, which was scrapped in 2010 before it could be completed.

Tony Clarke, the authority’s assistant director of finance, said: “The company was set up with the intention of delivering the Building Schools for the Future programme for Wigan and Salford, but the Government pulled the funding prior to any Wigan school receiving any benefit.

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

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Under PFIs, private companies handle up-front costs on public building projects such as prisons, hospitals, schools, and infrastructure, in exchange for yearly payments from the state.

Contracts often last decades and the deals, which were introduced by the Conservative government in the ‘90s and increasingly used by Tony Blair’s Labour government, cost the taxpayer much more than if the projects had been funded from the public purse.

And it’s relatively unusual for a council to invest in one itself.

But, according to government figures, Wigan Council holds 0.25 per cent equity in a PFI project called ‘BSF wave three phase two’, which was procured by Salford Council in 2011 and saw three secondary schools built in that area of Greater Manchester.

The project’s capital value was £69m, though taxpayers will repay £268.40m over the course of a 25-year contract, which will end in 2038/29.

Repayments will peak the year before at £12.2m.

HICL Infrastructure, which has an 80 per cent stake in the deal, said on its website it was to “finance, construct, operate, and maintain” the schools, which have the capacity for 2,600 pupils.

Speaking in 2010 shortly after the Conservatives came to power in coalition with the Liberal Democrats, the then-education secretary Michael Gove, said: “The Building Schools for the Future scheme has been responsible for about one third of all this department’s capital spending, but throughout its life it has been characterised by massive overspends, tragic delays, botched construction projects, and needless bureaucracy.”

The then-shadow education secretary Ed Balls described the move as a “tragedy” and said the decision marked a “black day for our country’s schools”.

The government has also distanced itself from any new PFI deals, with the former Chancellor Philip Hammond last year said none would be signed. He said the government was “putting another legacy of Labour behind us” and would “abolish” their use.

The Wigan Life Centre, in College Avenue, was built through a PFI project. It’s a 26-year contract with a capital value of £50.5m, with repayments set to total £222.9m.

Schemes have 'crippled hospital finances'

Taxpayers are shelling out billions of pounds more than planned for schools, hospitals and other projects built through controversial deals with private companies, an investigation by JPIMedia can reveal.

Extra costs and rocketing inflation are set to add at least £4bn to the overall price tag of Private Finance Initiative (PFI) schemes, according to figures obtained from hundreds of public bodies.

Penny Mordaunt, the former Defence Secretary, is among those who have warned that PFI schemes have “crippled hospital finances” as it can be revealed hospital bosses in her

Portsmouth North constituency will pay out an extra £700m for a hospital expansion scheme signed under the Labour government in 2005.

It can also be revealed that:


- An NHS maternity unit built and run by a private company was closed after just 16 years but is still costing the taxpayer millions of pounds;


- A police force in the South East is trying to think up new uses for a mothballed custody suite it is still paying for;


- Expensive maintenance contracts have seen one police force billed £884 for an extra chair.

With some PFI schemes set to continue into the 2040s, trade union leaders and public sector campaigners have called for urgent action.

Unite assistant general secretary Gail Cartmail said the “ever-escalating costs” of PFI are a “national scandal”.

She said: “The money that has poured into the pockets of profit-hungry financial institutions and private companies could have been much better spent directly on public service projects and infrastructure. PFIs are a rip-roaring example of out-of-control ‘bandit capitalism’.”

Many of the deals struck with the private sector in the late 1990s and early 2000s to replace crumbling buildings were pegged to the retail price index (RPI), the now-discredited high measure of inflation still used to calculate rail fare hikes and student loan interest payments.

This has risen faster than many councils, police forces or NHS trusts had planned for, lumbering them with ever-bigger payments at a time when they have seen their own budgets squeezed.

Alterations to buildings or services have also seen authorities hit with unforeseen costs.

Joel Benjamin, the co-founder of The People versus PFI, a campaign group calling for an end to the “institutionalised theft” of PFI debt, said the rising bill highlights how the scheme is a “shocking waste of public money”.

The contracts were first introduced by John Major’s Conservative government in the 1990s, but were significantly expanded under Tony Blair’s Labour.

The annual cost of PFI deals has this year hit £10bn - equivalent to a tax of more than £150 on every person in the UK.

The government’s oversight of PFI was heavily criticised by MPs and trade unions after the spectacular collapse of outsourcer Carillion, which the National Audit Office estimates is set to cost taxpayers £150m.

The shadow Chancellor John McDonnell has said a new Labour government will end PFI and bring financing schemes “in house”. Labour said the cost of schools and hospitals has “ballooned” under PFI.

In setting out his post-Brexit investment plans at the Conservative conference last month, the Chancellor Sajid Javid said he would “bring in an infrastructure revolution” and invest an extra £13.4bn into public services.

His predecessor Philip Hammond abolished the PFI model in the wake of the Carillion collapse.

The Treasury said it was supporting health authorities to manage the costs of old PFI deals. A spokeswoman said: “As announced in last year’s Budget, we will no longer be using PFI and PF2 funding for new government projects.”

Many deals to run public buildings are still shrouded in secrecy

Many authorities have refused to release details of the Private Finance Initiative (PFI) schemes they are involved in, prompting criticisms that the deals remain shrouded in secrecy.

JPIMedia Investigations requested the release of hundreds of contracts using Freedom of Information laws, but a third of responding authorities refused to supply them, citing commercial confidentiality.

It comes as our investigation reveals that taxpayers are paying billions more than planned towards the schemes, thanks to rocketing inflation and additional costs.

Megan Waugh, a postgraduate researcher at the University of Leeds who is studying PFI, said this meant the contracts and the people profiting from them were “not accountable to anyone”.

She said: “Councillors, MPs and members of the public have legitimate questions about the safety of these buildings about the level of profiteering but the answers remain hidden behind the cloak of ‘commercial sensitivity’ and ‘confidentiality’.

“It is very difficult to challenge this legally as private interests trump the public interest.”

Explaining the decision to withhold the contracts, many of the authorities said they had decided that the duty to protect suppliers’ commercial interests outweighed the public interest in releasing the documents.

Some other authorities heavily redacted contracts before supplying them.