Hint: It's not anywhere near as much as the right would have you believe...
When Shadow Chancellor John McDonnell called for an end to Private Finance Initiatives last September, his call was met with outrage and disbelief from sections of the right – with claims flying about ‘leaving taxpayers on the hook for billions’. But how much nationalising the controversial schemes cost?
The Chief Executive of the Nuffield Trust claimed the plans – which would involve nationalising the Special Purpose Vehicles the schemes operate under – would cost £50bn.
Yet new research from the University of Greenwich’s Public Services International Research Unit shows that the true cost would be far lower.
By looking at how PFI schemes have been ended across the public sector over the past decade, the authors show that there are ways of taking infrastructure, schools and hospital projects back into the public sector without breaking the bank.
As of March 2016, there were 716 PFI projects – with outstanding payments of £199bn to be made, with most not ending until the 2030s.
Borrowing under PFI costs the taxpayer 7-8% per year – compared to just 3-4% under government loans.
The authors show that bringing PFI contracts into public ownership would eliminate not only shareholder profits, but would also dramatically reduce interest payments – while slashing private sector consultancy costs and increasing efficiency.
The report, “Nationalising Special Purpose Vehicles to end PFI: A discussion of the costs and benefits”, states:
“The cost of compensating the shareholders of the [Special Purpose Vehicles] on HM Treasury database would be between £2.3bn and £2.5bn.
“Service contracts [can be] renegotiated so that the public authorities contract directly with the providers, not via the SPV. This secures significant annual savings from the elimination of operating profits, of £1.4bn, indicating that nationalisation will pay for itself within two years.
“The article proposes to honour all outstanding liabilities but to secure substantial refinancing through a new body in which ownership of the SPVs will be vested.
“…As service contracts are ended, either through break clauses or other reasons, the public authorities must bring provision ‘in-house’, ending outsourcing and also providing further savings from more rational and integrated provision.”
The proposals have been developed on the basis of extensive research into how PFIs operate, and consideration of the range of alternative solutions to the PFI problem that have been put forward so far.
Joel Bejamin, spokesperson for People vs PFI told Left Foot Forward:
“The costs of nationalisation would be down to government policy and compensation levels being fair – if Parliament decides to nationalise PFI it’s up to them to decide what the levels should be.
“PFI has been an obscene source of wealth for investors for decades now. Ending this disaster is a no brainer.”
Needless to say, Labour have responded warmly to the plans, with John McDonnell saying:
“Ending PFI and bringing contracts in-house will deliver savings to the taxpayer which can be reinvested in our public services rather than lining the pockets of investors in offshore tax havens.
“The next Labour government will end the fiscal irresponsibility of the Tories and put an end to the PFI rip-off once and for all.”
The paper by Dr Helen Mercer and Professor Dexter Whitfield is published by the Public Services International Research Unit at the University of Greenwich.
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