McDonnell told the Labour conference in Brighton that the PFI deals had resulted in huge long-term costs for taxpayers © PA Images
McDonnell told the Labour conference in Brighton that the PFI deals had resulted in huge long-term costs for taxpayers © PA Images

Labour vows to bring PFI contracts ‘back in-house’

26 September 2017

UK shadow chancellor John McDonnell has announced that a future Labour government will nationalise private finance initiative (PFI) contracts as part of plans to roll back private sector involvement in UK public services. 

Speaking at the Labour Party conference in Brighton, McDonnell announced the party’s manifesto pledges on the economy and said if elected, the party would review all PFI contracts with a view to bringing existing deals “back-in-house”.

“We have already pledged that there will be no new PFI deals signed by us but we will go further,” he said.

“I can tell you today, it’s what you’ve been calling for—we’ll bring existing PFI contracts back-in-house.”

McDonnell also announced Labour’s plans for large-scale nationalisation of utilities and tax rises for business. 

“We will bring ownership and control of utilities and key services into the hands of the people who use and work in them—rail, water energy, Royal Mail—we’re taking them back,” he said. 

Under a PFI contract, private firms fund and build public facilities, including schools and hospitals, then effectively rent them back to the state. Usually through a special purpose vehicle (SPV), firms do the borrowing, contract the construction and in some cases also contract ancillary services such as cleaning and building maintenance.

As of March 2016, there are 716 PFI projects, 686 of which are still operational, according to government figures. The non-operational projects have either been cancelled or have reached the end of the contract period. 

As SM reported last month, PFI projects have generated £831m in pre-tax profits for private firms in the health sector over the past six years, according to analysis by the Centre for Health and the Public Interest

McDonnell said that PFI deals had led to billions of pounds being paid to shareholders with an estimated £28bn of costs for taxpayers including bailouts, interest charges and management fees.

In 2012, the Department of Health gave a £1.5bn bailout to seven trusts weighed down by PFI debts.

“The scandal of the PFI has resulted in huge long-term costs for taxpayers while handing out enormous profits to some companies,” he said.

“Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens.”

A Labour press release about the PFI policy however was more subtle than McDonnell’s speech, suggesting Labour would only take the contracts back in-house “if necessary”.

“Labour will review all PFI contracts and, if necessary, take over outstanding contracts and bring them back in-house, while ensuring NHS trusts, local councils and other do no lose out and there is no detriment to services or staff.”

John Appleby, economist for health charity the Nuffield Trust, told the BBC that ending the contracts would require a “massive” compensation bill and it was not clear where the money would come from.

“The trouble with these kind of announcements is the fine print of the details—taking back into public ownership does not come free. The money will have to come from somewhere,” he said.

“In the NHS in England, it is paying around £2bn a year in PFI repayments and they will peak in about 2028, 2030 and I suppose if you add those up from now on to the end of those contracts—the contracts end at different periods—we could be looking at something like £56bn by 2048.”

Carolyn Fairbairn, director general of the employers’ organisation CBI, said McDonnell’s plans on both nationalisation and PFI were ill timed given uncertainty surrounding Brexit. 

“Forced nationalisation of parts of British industry will send investors running for the hills, and puts misplaced nostalgia ahead of progressive vision,” she said.

“The shadow chancellor’s vision of massive state intervention is the wrong plan at the wrong time. It raises a warning flag over the British economy at a critical time for our country’s future.”

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