£30 billion: The cost of Labour's toxic PFI legacy to Scotland

An investigation by the Sunday Herald has uncovered the huge debt that Scotland’s public sector will have to repay - not just for schools, but also for hospitals, roads and waste treatment plants.

The idea of private finance initiatives – in which public sector bodies pay private companies or consortiums to build and manage new facilities – was introduced by John Major’s Tory government but massively expanded by New Labour in the decade from 1997, and championed by Gordon Brown and embraced by former First Minister Jack McConnell in Scotland.

There were 80 projects completed in Scotland between 1993 and 2006 which still have contracts being paid for by the taxpayer, according to statistics published by the Treasury last month.

The estimated annual unitary charges – which are repaid by the public sector to cover the cost of everything from maintenance of buildings to payment of interest – adds up to a staggering £30.2 billion with contracts which extend for as long as 35 years.

The figure is more than five times the £5.6 billion initial costs associated with constructing and opening the buildings.

Allyson Pollock, professor of public health research at Queen Mary University London, who has raised concerns about PFI projects for a number of years, said: “The taxpayer is being fleeced twice – once through these very expensive PFI schemes, where we have lost control of a lot of land and buildings. It is a form of privatisation. The second issue is that not only are we continuing to pay, but our children and grandchildren will also.”

Pollock said a full-scale public inquiry should be held into the 'crumbling schools scandal' and that the calamitous failings showed it was time to lift the lid on PFI.

She said the idea there had been no other ways to fund new buildings at the time was “nonsense”. Instead, Pollock said, it had been due to a political push by Labour, particularly by Gordon Brown when he was Chancellor.

“PFI was a way of keeping capital expenditure off the balance sheet so it looked good,” she said. “But we have huge liabilities and the position is really bad in Scotland as we have more overall PFI per head of population than in England.”

Joel Benjamin, researcher with campaign group The People Vs PFI, said the figure for Scotland was “extraordinarily high” and there were questions to be asked over the value for money of the contracts.

He said: “If you have a capital cost of £5bn, the typical unitary charge cost would be three to four times, so I would expect to be repaying £15-20billion. The fact you are paying £5 billion capital cost, and have £30 billion repayment cost, seems to be extraordinarily high.”

Benjamin said a fundamental question to be asked was why the government was able to use taxpayers’ cash to bail out privately-owned banks during the financial collapse – yet funds could not be found to build infrastructure such as schools.

The Treasury figures show the estimated unitary charges each year for each PFI project operational in the UK as of March last year. Major projects in Scotland include the construction of new schools in Glasgow, which were operational by 2001. The construction cost was £225 million, but by the time the last repayment is made in 2030 the total unitary charges will add up to around £1.5bn.

The Forth Valley Royal Hospital in Larbert, which opened in 2011, cost £293m to build and open. The last repayment will be made in 2041-2, by which time the repayments will have added up to £1.8bn.

The new Royal Infirmary of Edinburgh was also constructed under a PFI scheme and will cost the public purse around £1.4bn over the course of the 33-year contract.

Mark Hellowell, senior lecturer in social policy at Edinburgh University, said the unitary charges covered the repayment of all the private capital involved, as well as the cost of services such as cleaning and catering.

He said it was not possible to work out the profits of private firms from the unitary charges, but added: “In a sense it is not very informative from a value for money point of view, but it is informative from an affordability point of view and just having an awareness of the scale of future liabilities that accrue to these projects is important for public organisations. You can see it is going to be an important call on the resources of these organisations for a long time.”

Ronald McQuaid, professor of work and employment at Stirling University, said all PFI schemes could not be labelled as “bad” due to the problems which have emerged with the schools in Edinburgh, but he added: “I do think there is a systematic thing going on with PFIs as there is constant pressure to reduce the costs of construction. In a traditional contract where a construction company builds a new school for the local authority, there is obviously pressure for them to reduce the costs so they can make a larger profit. But I think with PFI there is a slightly more systematic bias in terms of getting them to reduce costs and sometimes that goes overboard.”

McQuaid pointed out there were benefits of private finance contracts for public bodies, such as having fixed costs for a number of years and the ability to quickly provide new hospitals and schools, but he questioned whether it should have been used as a “one size fits all” solution to funding new infrastructure.

He added: “It would have been better if they had said we are going to borrow and only use PFI where there was a genuine advantage over traditional procurement – rather than being the standard way of going about it.”