A £199 billion Private Finance Initiative bill will need to be footed by the taxpayer, even if there are no further deals struck, the National Audit Office (NAO) has found.
There are currently 716 deals operating under PFI and its successor PF2, which accumulated an annual charge of £10.3 billion in 2016/17 which will stretch into the 2040s.
The survey was commissioned prior to Carillion collapsing but the publication comes in the aftermath of the construction giant's demise, which led to Labour leader Jeremy Corbyn to slam the "costly racket" of the current system.
The NAO found that the private finance policy "results in additional costs compared to publicly financed procurement". Back in 2010 he Government's National Infrastructure Plan said capital raised through PFI cost 2% to 3.75% more than from state borrowing..
What are PFIs?
Private Finance Initiatives are public-private partnerships which allow Government to find methods of financing the construction of new buildings and infrastructure without needing to stump up the money.
Traditionally, the Government would pay for the building of a new school or hospital, for example, by raising taxes or borrowing the money and the use the finance to pay a company to build it, resulting in the state then owning the property upon completion.
Under PFI, however, a tender is put out for private companies to bid for. The Government would then commission the third party to carry out the necessary works and would then pay the builder or whoever owns the contract going forward to lease the building or infrastructure back for years to come.
Why are PFIs controversial?
It is generally accepted that PFIs cost more than if the money comes directly from the Government. Due to the extra expense, the projects need to be run more effectively.
Labour say they would scrap PFIs if they won the next election.
“Over the next few decades, nearly £200bn is scheduled to be paid out of public sector budgets in PFI deals. In the NHS alone, £831m in pre-tax profits have been made over the past six years," Shadow Chancellor John McDonnell told Labour party conference last year.
“Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens,” he added.
It is accepted that £28 billion has been lost through PFIs, caused by higher interest rates, bailouts and management fees.
The Government defended the system. They said in a statement: “We have reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money,” he said.
“Taxpayer money is protected through PFI and PF2 as the risks of construction and long-term maintenance of a project are transferred to the private sector.”