Private finance initiative: PFI projects cost £2.4bn

By Simon Hall
BBC South West Home Affairs Correspondent

image captionThe biggest margin on a project is accommodation for services' personnel at Devonport Naval Base

Buildings in Devon funded by private finance initiatives (PFI) will cost nearly five times more than if just government funded, the BBC understands.

Government figures show the PFI cost of buildings such as schools, hospitals armed forces' accommodation and other major projects will be nearly £2.4bn.

PFI allows the government, which plans to reform its use, to fund works without paying full costs at the start.

Unions and some politicians have said PFI is a waste of public money.

Taxpayers fund expenditure

There are eight major PFI projects in Devon which include the upgraded A30 in the east of the county, new schools in Exeter, Plymouth and Torbay, a community hospital in Tiverton and accommodation at Devonport Naval Base in Plymouth.

Exeter's combined court building was also built as part of a PFI scheme.

Calculations by BBC Spotlight based on figures from the Treasury estimate the capital cost of the new infrastructure is £530.2m and the total repayment cost will be £2.394bn.

The county's taxpayers will be funding the expenditure for up to 30 years.

The biggest margin on a project is new accommodation for services' personnel at Devonport Naval Base in Plymouth.

Its eventual cost of £554m, which will also include service and maintenance charges, is more than 12 times the initial building price.

Analysing the figures, it is noticeable the projects with the biggest profit margins for contractors were negotiated centrally, by government, while those signed by local councils appear better value for money.

image captionExeter's combined court building was also built under PFI

PFI began in the UK in the 1990s under the Conservative government of John Major, and accelerated during the Labour administrations of Tony Blair and Gordon Brown.

Private companies carry out the construction work and maintenance, in exchange for regular payments from the taxpayer.

It has proved controversial with criticisms that it is overly generous to the private contractors.

Some schools, including in Exeter, have said the quality of parts of their new buildings have been poor.

Other public bodies, such as hospitals, have complained that large debt repayments, over long periods of time, make it difficult for them to balance their books.

However, defenders of PFI said it provided new infrastructure which would otherwise be unaffordable.

All of Exeter's secondary schools have been built under PFI.

Despite criticisms, Andy Mulcock, of the schools' umbrella organisation Exeter For Learning, said the city had benefitted.

He said: "All the schools were rebuilt together, and it has meant a lot more competition and partnership between schools.

"We've seen massive improvements in the learning and achievements of our students right across the city."

'Transparency and efficient'

However, economist Kevin Butler, a former adviser to the Bank of England, said it was not surprising PFI cost more.

He said: "It's always cheaper for the government to borrow itself, rather than to use the private sector.

"It terms of today's borrowing costs, it also makes more sense for government to borrow to fund these programmes, rather than rely on private finance, especially at a time when private finance is in short supply."

The government announced PFI was to be reformed, with the taxpayer taking a share in projects and any profits.

The Treasury said: "The government has recognised the concerns about the previous PFI model, such as on transparency and value for money.

"We've conducted a fundamental reassessment and created a new delivery model, PFI 2, which draws on private sector innovation, leading to better value for public services and to the taxpayer."

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