Labour government would bring PFI contracts ‘back in-house’

Labour could take private finance initiative (PFI) contracts worth billions of pounds back into the public sector under plans unveiled by shadow chancellor John McDonnell.

Mr McDonnell won loud applause at the party’s annual conference in Brighton when he said the party would take the controversial contracts back in-house when it came to power.

Conservatives denounced the plans as “unaffordable” while the head of the independent Institute for Fiscal Studies (IFS) said taking back the contracts would cost “an awful lot” in up-front payments.

It was too early to say what the up-front cost would be but it would not run into “billions and billions”, he said.

Aides later said a review of all PFI deals, to be carried out after Labour takes power, is expected to find most are appropriate for returning to public hands.

Mandatory bond-for-share swaps, approved by Parliament, would compensate the private firms involved but would be far cheaper than the £200 billion cost to the taxpayer of continuing to pay out on the contracts over the decades to come.

Introduced by former Conservative prime minister John Major in 1992, use of PFI was dramatically stepped up under Tony Blair’s administration to help fund a huge wave of new hospitals and schools.

Under PFI, a private sector consortium funds, builds and maintains a facility on behalf of a public agency, then receives payments over the term of the contract, typically lasting 25-30 years.

The scheme has been challenged on value-for-money terms as the NHS and other public bodies are forced to pay much more than the original construction cost of their properties, though defenders of PFI say it transfers the risk of major infrastructure projects onto the private sector.

Labour pointed to figures from the Centre for Health and the Public Interest suggesting up to 31% of money paid to PFI companies for hospitals went to pre-tax profit.

Mr McDonnell told the Brighton conference: “The scandal of the private finance initiative has resulted in huge long-term costs for taxpayers while providing enormous profits for some companies.

“Over the next few decades, nearly £200 billion is scheduled to be paid out of public-sector budgets in PFI deals. In the NHS alone, £831 million in pre-tax profits have been made over the past six years.

“Jeremy Corbyn has made it clear that under his leadership, Labour will sign no new PFI deals. I can tell you today that when we go into government we’ll bring these contracts and staff back in-house.”

The shadow chancellor was cheered as he confirmed a Labour government would scrap university tuition fees, overturn Conservative trade union legislation and nationalise rail, water, energy and the Royal Mail.

Conservative Chief Secretary to the Treasury Liz Truss said Mr McDonnell’s plans would add billions of pounds to the £253 billion of spending promises already made by Labour since the launch of its manifesto.

“These unaffordable Labour promises wouldn’t improve public services and the costs would just rack up and up,” said Ms Truss.

IFS director Paul Johnson told BBC2’s Daily Politics: “This is not about just getting rid of austerity or moving back to where the last Labour government was. This is a root-and-branch change to the way the economy has worked since at least the 1970s.”