Taxpayers have been left with a £3bn bill for contracts signed by Leeds council bosses to construct and maintain new schools, homes and waste facilities paid for under the controversial Public Finance Initiative, the YEP can reveal.
Town hall bosses across Yorkshire have entered into a raft of ‘buy now, pay later’ agreements worth £13bn since the turn of the century using PFI, where private firms fund the upfront costs of new buildings and are paid back over the next 25 years or more.
The majority will be paying back millions of pounds a year in ‘unitary charges’ well into the 2030s, by which time the total spend will dwarf the original construction costs.
Critics argue that PFI, which became widespread after Labour took power in 1997, is a more expensive way of funding public schemes than simply borrowing. Many of the contracts end up being heavily subsidised by central government.
But supporters say the contracts bring many benefits, with the private contractor taking on the risks involved with a major project and often providing maintenance and management of the new building.
Leeds City Council has signed 14 contracts, which will see more than £3bn paid back by the end of the final agreement in 2041 and a payment of £109m made last year alone.
PFI was the only game in town under [Tony] Blair and [Gordon] Brown. If you didn’t join in you didn’t get any funding.Stewart Golton
Officials say that because central government pays for two-thirds of this through PFI credits, the council has got an “incredibly good deal”.
The council’s deputy leader James Lewis said: “People aren’t just local tax-payers, they are national tax-payers as well, and there are some questions for central government about whether they secured the best value and took the best approach.”
A long-delayed housing scheme for Little London, Beeston Hill and Holbeck saw the construction of 400 new homes, the refurbishment of hundreds more and their maintenance, to a high standard, over two decades, for a net outlay of £21m.
Neil Evans, Director of Resources and Housing at Leeds City Council, said: “The alternative for us is that we would have had to have borrowed, and we would have had to find all that money to manage it over that period. For the council tax-payer it has been an incredibly good deal.
“There is a separate question about whether the funding of PFI nationally is always the most sensible thing to do.”
First introduced by the Conservatives, PFI became widespread when Labour came to power in 1997.
Such was the controversy over the value for money and transparency it offered that in 2012 it was reviewed and re-branded, as PF2.
Stewart Golton, leader of Leeds’ Liberal Democrat group, said: “PFI was the only game in town under [Tony] Blair and [Gordon] Brown. If you didn’t join in you didn’t get any funding.
“Councils had restrictions on what they could do with their finances.
“It looked good on government debt spreadsheets because it was spread over 30 years, and Number 10 could roll out new hospitals, roads and streetlights.
“They were warned that PFI was enjoy today, pay tomorrow, and unsustainable. Now councils can borrow on historically low interest rates to invest in infrastructure, the folly of the PFI is laid bare as that debt is locked in just at the time when councils are struggling to keep services going.”
PFI expert Dexter Whitfield, director of the European Services Strategy Unit think tank, says the arguments made for why PFI represented best value for money were often flimsy. I have seen local authorities increase the value for money of PFI by reducing the supposed costs of PFI and by increasing the supposed cost of a local authority project to show that PFI was the best value for money.”
He says the process is actually costlier than public debt, with interest paid at twice the rate to publicly-funded projects. “If you take that over 25 years it will ratchet up on a large scale,” he said.
A Treasury spokeswoman said: “All public sector projects are subject to a value for money assessment before they go ahead.”
Of the PFI contracts currently ongoing, the first taken out by Leeds City Council was in 1999, to build Cardinal Heenan school in Meanwood. The building cost £9m but over 25 years, £24.4m will be paid.
A later PFI, the energy recovery and recycling facility in Cross Green, opened last year. The council says the £555m cost of building and running it over 25 years is about £200m less than it would have had to pay in landfill taxes.