John McDonnell, the UK’s shadow chancellor, has vowed to bring all existing PFI contracts “back in-house” should the Labour Party enter government.
McDonnell went a step further than Labour leader Jeremy Corbyn – who pledged to no longer sign new private finance contracts in the run-up to the election – by branding the scheme a “scandal” and criticising the profits made by private companies.
“Over the next few decades, nearly £200 billion ($268.6 billion; €227.8 billion) is scheduled to be paid out of public sector budgets in PFI deals,” McDonnell said. “In the NHS alone, £831 million in pre-tax profits have been made over the past six years. As early as 2002 this conference regretted the use of PFI.
“Jeremy Corbyn has made it clear that, under his leadership, never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens. The government could intervene immediately to ensure that companies in tax havens can’t own shares in PFI companies, and their profits aren’t hidden from HMRC.”
McDonnell’s proposals were criticised by Carolyn Fairbairn, director-general of the Confederation of British Industry, who warned of “a flood” of stalled investments should the plans become a reality.
“The shadow chancellor’s vision of massive state intervention is the wrong plan at the wrong time,” she said. “It raises a warning flag over the British economy at a critical time for our country’s future. “Forced nationalisation of large parts of British industry will send investors running for the hills, and puts misplaced nostalgia ahead of progressive vision.”
The latest figures from the National Audit Office show that since PFI’s inception in 1992 there are 716 operational projects with a total capital value of £59.4 billion. An attempt to rebrand the scheme under PF2 was introduced in 2012 but has seen minimal use to date. Nearly all of these contracts contain provisions dealing with early termination, according to Jonathan Hart, a partner at law firm Pinsent Masons, but these would be “hugely complicated” and would require financial compensation to current investors.
“Any policy to bring existing PFIs to an end would need to factor in these kind of costs and challenges – a feature which has been recognised in the changes of language on Labour policy around nationalising rail franchises,” he said. “Like it or not, PFI and its variants have delivered a range of social and economic infrastructure for the UK which probably would not exist, but for the engagement of project-financed solutions.
“Now, more than ever, private finance, not just from banks but pension funds, is looking at the very limited category of assets in which to invest – appropriate, long-term investment represents an extremely important market and supplement to paying for projects directly out of UK plc’s capital funds. PFIs have been, and continue to be, very important to jobs in the construction and services industry.”
McDonnell’s speech also included a reiteration of the party’s pre-election pledges to nationalise rail, water and energy companies, declaring “we’re taking them back”.
John McDonnell’s team had not responded to requests for further comment at the time of publication.