Public purse to face further £150bn hit from PFI

Companies involved in PFI contracts have already pocketed £100bn since 1992 and are now set for a further bonanza

Tony Blair's government signed off many of the contracts. 
Tony Blair's government signed off many of the contracts.  Credit: Stefan Rousseau/ PA

Outsourcers running hospitals and other vital public services are in line for almost £150bn of taxpayer cash under private finance initiative (PFI) contracts dating as far back as the New Labour era, figures show.

Companies which took public money to handle key operations on behalf of the British state have already pocketed £100bn since 1992 and are now set for a further bonanza, according to analysis from the Institute for Public Policy Research (IPPR).

It estimates that £55bn is owed on hospital contracts alone, with a further £22bn and £20bn due respectively on defence and transport schemes.

PFI was launched by then-Prime Minister Sir John Major as a way of funding spending projects without immediately piling the cost onto the government’s books. Tony Blair then took the programme up with gusto when he swept to power in 1997.

Under the deals, companies are paid to build, maintain and run public sector schemes for a set period of time. The businesses stump up the initial up-front bill and recoup the money by charging the state over several decades.

However, PFI has long been criticised for costing the Treasury far more in the long run. Several contracts have been attacked for their poor design, and a host of projects were completed very late and over budget.

Then-Chancellor Philip Hammond announced the end of PFI in 2018 - but the IPPR data reveals the long legacy of the programme at a time when public finances are ultra-tight due to Covid.

Phillip Hammond declared PFI 'dead' in 2018. Credit: Heathcliff O'Malley

Some organisations are being forced to spend a huge chunk of their income on PFI deals, the research shows. At Sherwood Forest NHS Trust for example, PFI accounts for 16.5pc of total earnings. The Government has previously committed to review and cancel PFI deals wherever possible, but there have been calls from some MPs and think tanks to go further.

Potential measures include allowing NHS trusts and other organisations to buy themselves out of bad PFI deals for a fair price. In 2014, Northumbria Healthcare Foundation Trust borrowed £114m off their local council to axe a deal linked to Hexham General Hospital.

Some contracts still have significant periods of time to go before they come to an end. PFI payments by the Department of Health and Social Care are forecast to peak in 2030, when it will hand out £2.6bn for contracts signed decades before.

Chris Thomas, of the IPPR, said: “Like buying a house with a payday loan – rather than a mortgage - PFI deals were a disastrous choice to finance infrastructure.

“The Government has promised to review all PFI contracts in health.

“However, this new analysis shows an urgent need to extend that enquiry further – to prisons, courts, schools and roads. “

Mr Thomas also called for the Government to use all available options to release public service firms from to exorbitant contracts.