Taxpayers to pay £199bn for PFI contracts into the 2040s, watchdog says

Swedish Prime Minister Fredrik Reinfeldt

The use of PFI contracts expanded under the Blair government

A group of schools typically cost 40 percent more to build and a hospital 70 percent more than if they were financed by government borrowing, the report said.

The NAO report, which was written before the collapse of Carillion, found 716 public projects were active under PFI and its successor PF2, with annual costs amounting to £10.3bn in 2016/17.

Repayment for these projects cost the taxpayer £10.3bn previous year, the report found. The school cost an estimated £24 million to build.

Public Accounts Committee chair Meg Hillier accused HM Treasury of having rebranded PFI without fundamentally changing it.

Contractual payments are set in stone, and it is very costly to re-negotiate a PFI contract.

Today's report outlines the huge additional expense involved in getting any extra work done once a PFI contract - which will usually involve the maintenance as well as the building of a school - has begun.

It said that PF2 was launched in December 2012 but that "the fundamental characteristics of PFI remain unchanged in the PF2 model".

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"Paying off a debt of £100m over 30 years with interest of 2% costs £34m in interest".

The NAO also describes the "operational inflexibility" of PFI contracts as a "drawback", noting that they often last more than 25 years.

A spokesperson said the Treasury disagreed with the NAO's analysis that privately financed projects were 40% more expensive, because the NAO had not looked at all the more than 700 PFI schemes in operation.

It says there has not yet been a "robust evaluation" of whether the extra costs of PFI were offset, as supporters claim, by benefits such as reduced risk to the taxpayer and higher-quality facilities.

The report was prepared before the collapse this week of contracting giant Carillion - a major player in government contracts - with debts of about £1.5bn.

Mr Corbyn told Theresa May at Prime Minister's Questions in the House of Commons: "These corporations need to be shown the door. We need our public services provided by public employees with a public service ethos and a strong public oversight".

The NAO said there was not enough data to assess the benefits of the schemes. "Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change", the Guardian reported.

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The Treasury said it only approved PFI contracts that were value for money.

"Nothing can hide the chronic failure that it has proven to be over decades", she said.

The findings, together with the continued fallout of the Carillion collapse, are likely to be seized upon by critics of PFI, including Labour which has said it intends to scrap the deals.

In a scathing analysis of the success of the projects, the NAO said that there is nearly no information about whether PFI agreements are actually better value for money given the higher cost of the deals to government.

The first PF2 projects progressed with schools where "the contract and project documents used for these deals are slightly altered versions of PFI documents, demonstrating the limited changes between PFI and PF2".

The benefits of outsourcing public sector projects have traditionally been seen as increasing the available pool of capital for investment, the transferral of risk to the private sector entity during construction, and better management during the operational phase, as the firm running the asset seeks to maximise its profit by creative efficiencies.

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