Cost of controversial PFI schemes in Northamptonshire will top £1.73 billion, our investigation reveals

Investigation by JPIMedia, publishers of this newspaper
Investigation by JPIMedia, publishers of this newspaper

The cost of dozens of the schools, hospitals and care homes built in Northamptonshire under the controversial PFI scheme will top £1.73 billion by the time all of them have been paid off – even though the value of those buildings will be just a fraction of that amount.

An investigation by JPIMedia, the publishers of this newspaper, has revealed the actual value of the building work will amount to just £398 million.

Investgiation by JPIMedia

Investgiation by JPIMedia

PFIs, or Private Finance Initiatives, were a method of funding public building introduced under the John Major Government in the early 1990s. By the time of the early 2000s, under Blair’s new Labour, it became practically the only means for local councils, hospital trusts and prisons to get anything built.

The schemes worked by public bodies entering into contract with private companies to both build and operate new infrastructure.

Under PFIs, private companies handled up-front costs on projects such as prisons, hospitals, schools, and infrastructure, in exchange for yearly payments from the state over decades.

Bodies that entered into such schemes would then be entitled to PFI Credits – or grant payments back from the Government – in return for signing the lengthy deals.

Leaders in Northamptonshire – faced with decaying 1970s-built public buildings - entered into a series of PFI deals back in the early to mid-2000s.

But while they have delivered much-needed infrastructure – 42 new schools, four care homes, two hospitals and a swathe of new streetlights – their value for money has been the source of ongoing debate.

Today, in an exclusive by this newspaper, the man who was instrumental in drawing up the terms of the two biggest projects has admitted he would have financed the schemes in a different way if he could have at the time.

The largest of which was a project to build 12 new schools in the county and refurbish a further 30, signed under a new Conservative administration in 2005. Caroline Chisholm in Wootton was among the new facilities built.

This year the county taxpayer will pay back some £28 million towards the scheme signed in 2005 and the repayments will rise every year until 2036, peaking at £36 million.

In 2016/17, some £10 million of those repayments covered interest alone.

Critics against PFI say that leaving crucial public building works in the hands of profit-making companies has led to grossly inflated costs.

They say it was always ‘naïve’ to consider the private market would not seek to make large profits from PFI.

Last year the company set up to run the county’s largest PFI project, Northampton School Partnership, paid out more than £3 million in dividends to its shareholders. Its only income derives from Northamptonshire County Council.

The major equity holder for the company contracted to build Daventry’s Danetre Community Hospital is an investment firm based in Jersey – a tax haven.

Last year, Northamptonshire County Council was declared effectively bankrupt and was put under the control of Government commissioners.

But JPIMedia’s investigation has revealed that this year, Northamptonshire County County Council will spend £54 million financing PFI schemes alone.

That amounts to around 10 per cent of its overall budget at a time when bus subsidies and libraries are being scrapped.

If every single person in Northamptonshire took an equal share of the overall PFI bill, they would pay close to £25,000 each.

Yet in real terms, the true cost of the contracts is likely to be far higher. In some cases maintenance costs are added on top of the yearly contract. Our investigation found one hospital trust was charged over £1,000 to move a framed picture – simply because the terms of the contract restrict procuring maintenance elsewhere.

Last year, this newspaper revealed a contract with Shaw Healthcare to build four care homes and run them over 30 years was woefully underperforming. Half of the beds at Thackley Green in Corby, Longlands Specialist Care centre in Daventry, Lancum House in Wellingborough and Turn Furlong in Northampton sit empty each week.

Every year it costs the council £2 million to place dementia sufferers elsewhere because they are not eligible to stay in one of the Shaw-built homes.

Nationally, the backlash against PFI has been gaining traction in recent years.

Last year, then chancellor Philip Hammond said that he would not sign off on another PFI deal, describing the partnerships as an unwanted ‘legacy’ from New Labour.

A report from the National Audit Office says there are over 700 current PFI deals with a capital value of £60 billion. Even if no new deals are entered into, future charges which continue until the 2040s amount to £199 billion.

And our JPIMedia investigation has revealed that at least £4 billion of additional costs have been added to PFI schemes up and down the land, either through rising Retail Price Index-linked inflation or extortionate maintenance fees.

That figure is likely to be the tip of the iceberg.

Joel Benjamin, founder of the People versus PFI campaign group, said: “It's a shocking waste of public money, but in a way, it's not a surprise when you consider these PFI project mortgage repayments are inflation linked and are going to last 25 or even 30 years.”