Magazine article Public Finance


Magazine article Public Finance


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Minister's attack is unfounded

We would take issue with health minister Andy Burnham's letter, 'PFI hospitals are value for money' (April 13-19), which questioned Manchester Business School's research on the first 12 Private Finance Initiative hospitals in England CPFI hospitals costing NHS extra £480m a year', March 23-29).

He disputed our finding, based on published accounts, that the private sector companies made an aggregate 58% post-tax return on shareholders' funds in 2005. In our research paper, which his officials have seen, we show the post-tax returns for each year since 1998. Apart from before the hospitals were operational, returns have been positive in three out of four years. Indeed, in two of the years they were 1,000% or more.

In one case, Meridian, the returns were much higher than the company had set out in its bond offer document to the London Stock Exchange. Meridian is the private sector partner for the Queen Elizabeth Hospital in Greenwich, whose soaring debts have been blamed in part on its high PFI costs.

The minister claims that annual returns are 'much more likely to be between 12% and 14%' (emphasis added), a figure that the Treasury had earlier rejected as too high. But he does not define the term or identify the evidence from which this is derived.

Furthermore, as our research explains, this underestimates the total returns to the shareholders due to profits derived from areas such as refinancing, subcontracting to sister companies, land sales and charges for parking, canteens and telephones.

Significantly, the minister did not refute our finding that, extrapolated to all signed hospital deals, the PFI will cost the trusts about £480m per year, due solely to the observable higher cost of private over public finance - because he could not. Neither could he explain how this constitutes value for money nor demonstrate that it is affordable.


Manchester Business School

Reality check on PFI road projects

Health minister Andy Burnham complained on your letters page that a Manchester Business School report on the Private Finance Initiative 'misrepresents the reality'.

In March 2004, a Treasury minister gave details of various PFI schemes, including one that we are interested in - the second Severn Crossing. Late in 2004, we queried the figure for the refinancing gain total and how it was split between the government and the contractor. …

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