A BILLION-POUND 'RACKET'; It Was Labour's Favourite Trick for Cooking the Books -- Using Private Money to Build Hospitals and schools.Yet as Panorama Reveals, the Private Finance Initiative Is Damaging Public Services -- and Has Made Fat Cats Vast Profits
Byline: by John Ware
JUST imagine the outcry if new schools, built with taxpayers' money, were found to have no light switches so that lights were left on 24 hours a day all year round, or had windows that don't open so that classrooms were often stuffy.
A Panorama investigation discovered two Yorkshire schools in such a state, yet when questions were asked about why they were built this way or when the faults might be fixed, they were met with a wall of silence.
Why? Because the schools were built using private funds as a result of the Private Finance Initiative (PFI), the scheme under which private companies build projects such as schools and hospitals then lease them back to the state. In England, the financial agreements behind which PFI companies make their billions -- and believe me, it will be billions -- are exempt from public disclosure under the Freedom of Information Act on the grounds of maintaining commercial confidentiality.
That's just one of the reasons grave concerns are growing among many expert observers that the Private Finance Initiative looks to be one of the scandals of our age. One Tory MP, Richard Bacon, who sits on the Commons Public Accounts Committee, says taxpayers have been 'ripped off' -- forced to pay over the odds for many PFI projects.
In contrast, a senior executive from one of Britain's biggest accountancy firms -- which acts as a consultant for the Treasury -- valiantly tried to persuade me that taxpayers' interests had been safeguarded when controversial government contracts were signed with private investors involving nearly [pounds sterling]300billion of taxpayers' money over the average 30-year life of these contracts.
But all he succeeded in doing was highlighting the mammoth liability the Treasury has allowed to be racked up under PFI.
During the 20-year period since private firms were first engaged in such contracts, they have been paid to manage around 700 major state projects. These produced almost 1,000 hospitals and schools, and many transport, prisons and defence contracts.
Advocates of PFI are convinced that taxpayers get better value for money than if the Government financed, delivered and managed such projects directly out of Treasury funds.
Perhaps this is not surprising considering that those private consultants involved, such as those at accountants Price water house Coopers, have earned up to [pounds sterling]800,000 for advice on each PFI hospital contract and [pounds sterling]400,000 for each PFI school.
In any case, they believe they are doing taxpayers a huge favour because they are much better equipped than civil servants to get value for money for hugely expensive investment projects. What's more, they argue that PFI companies are taking the risk of failure away from taxpayers because if anything goes wrong, they have will have to pick up the bills rather than the taxpayer.
However, findings by the BBC's Panorama, for a programme tonight, challenge this view and suggest the truth is that taxpayers are, in fact, bearing significant financial risks.
The Panorama survey shows that 89 per cent of PFI hospitals in England have taken the quite extraordinary gamble of locking themselves into 30-year contracts with PFI companies, and face their annual repayments rising inexorably if inflation increases.
Yet while these publicly-funded hospitals are vulnerable to paying these potentially huge extra costs, the PFI firms who own the hospitals have cleverly protected themselves from potential losses due to falling inflation by taking out special insurance arrangements with their own lenders.
Inflation is currently at 5 per cent. With the world economy in turmoil, there is a real risk it will increase in future years. Already, costs of many PFI repayments are rising higher than expected, and several hospitals would have become bankrupt if the Government had not stepped in. …