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Private finance deals cost taxpayer £10bn a year in fees

Carillion continued to be awarded government contracts despite signs it was struggling (AFP Photo/PAUL ELLIS )

“Exorbitant” PFI contracts are costing taxpayers £10 billion a year in fees alone, a damning report has revealed.

The National Audit Office said the 716 existing deals under Private Finance Initiative and the successor, PF2, cost around £10.3bn in 2016-17.

It also reported that those costs will continue into the 2040s even if no new schemes are given public money, adding up to £199bn.

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The government’s spending watchdog warned that taxpayers were paying for external advisers, lender fees and spiralling insurance costs.

And the NAO concluded that financing projects like schools and hospitals privately costs taxpayers billions of pounds more than public sector alternatives.

The government’s National Infrastructure Plan suggested that money raised through PFI in 2010 cost between 2% to 3.75% more than from state borrowing.

The NAO report adds: “Small changes to the cost of capital can have a significant impact on costs.

“Paying off a debt of £100 million over 30 years with interest of 2% costs £34 million in interest. At 4% this more than doubles to £73 million.”

Jeremy Corbyn has described PFI as a “costly racket” that should be abandoned (Leon Neal/Getty Images)

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.

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Carillion was responsible for a raft of services including providing meals to hundreds of schools, cleaning and maintaining scores of hospitals and prisons and also being a key member of various joint ventures on big building projects such as HS2.

Labour leader Jeremy Corbyn denounced PFI as a “costly racket”. During Wednesday’s Prime Minister’s Questions he said: “We need our public services provided by public employees with a public service ethos and a strong public oversight.”

The NAO gave several examples of where PFI schemes were proving to be poor value for money for the taxpayer.

Parklands High School in Liverpool cost about £24m to build through a PFI contract but now lies empty.

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However, the city council will pay around £4 million each year between now an the end of the contract in 2027-28 – an estimated £47 million – which includes interest, debt and facilities management payments, if no changes are made to the contract.

Meg Hillier MP, chair of the Public Accounts Committee, said the NAO had found “little evidence” that PFI’s benefits offset its costs.

“Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change,” she said.