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Labour’s big PFI buyout
PFEYE, Issue 1454
john-mcdonnell.jpg “WE’RE bringing ’em back,” cried John McDonnell at Labour’s Brighton conference, referring to the country’s 700 private finance initiative deals. Perhaps he’d been catching up on old copies of the Eye.

Back in 2014, after Northumberland NHS Foundation Trust bought out its PFI contract from a consortium called Catalyst, Eye 1369 suggested that “all PFI deals need a rethink”. So expensive had the deal been for Hexham general hospital that the trust could borrow from the local authority to buy out the backers – who landed a £15m one-off profit – and still save around £3.5m a year, or £65m in total over the remaining life of the contract.

This precedent disproves much ill-informed reaction to McDonnell’s announcement to the effect that the measure could not save money. Especially if the writing is on the wall for PFI, many operators will be willing to take a discount on their future profit margin in returning for getting their money out – plus a decent profit anyway – now.

Fiendishly complex contracts
It won’t be easy, however. The cash to fund the buyouts will have to be found somewhere, probably forcing a Labour government to relax borrowing constraints on public bodies. Then will come the unpicking of fiendishly complex contracts to arrive at the right compensation figure.

This is where the architects of PFI will come back in. The same consultants who did so much to create the initiative and have earned hundreds of millions of pounds setting up PFI contracts will be called on to crunch the buyout numbers. Deloitte, which has been behind many hospital deals, did the job for Northumberland.

The health service, however, accounts for only a fifth of PFI deals. In other areas, such as schools, local authorities may decide their contracts are too small to justify the upheaval. In others, such as defence, there could be another problem. Deals like the 25-year contract to supply in-flight jet-refuelling aircraft – with a capital value of £2.7bn, worth two and a half times the largest hospital deal – can’t be brought entirely “back in-house” as McDonnell put it. The PFI consortium in that case, made up of Airbus, Rolls-Royce and Thales, would end up running the project anyway and would be unlikely to offer much of a discount to walk away from owning the deal.

A bumper payday
The plan is thus likely to translate into the return of a minority of deals to the government with some useful savings, while providing another earner for the usual consultancy suspects.

McDonnell’s other idea, of intervening “immediately to ensure that companies in tax havens can’t own shares in PFI companies” (again an issue exposed in the Eye), could prove a bumper payday for m’learned friends. While stopping new deals going offshore has long been possible, reversing history will be another matter.

PS: IF ONE Labour MP had got his way a decade ago, there would have been another “rip-off” PFI scheme to bring back. In 2006 a new PFI hospital was proposed in Hillingdon, west London. Alas, it was delayed by a review of the use of PFI, which had by then started to prompt serious concerns.

Debating health services in parliament, the local MP chipped in. “We have a proposal for the PFI scheme for Hillingdon hospital,” he said. “I am not supportive of PFI schemes but if this is the way to secure the money, fair enough.” Although there was “a blip in terms of the Treasury review of the PFI”, the MP ventured hopefully that “this could be an opportunity not to delay the scheme, but secure it and consider an alternative site”.

While several stalled PFI schemes did go ahead, the Hillingdon one was scrapped. Which at least spares the blushes of the MP who wanted it to go ahead… one John McDonnell.

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Private Eye Issue 1453