Financing projects like schools and hospitals privately costs taxpayers billions of pounds more than public sector alternatives, parliament’s spending watchdog says.
A report suggests a group of schools cost 40% more to build and a hospital 70% more to construct than if they were financed by government borrowing.
That is according to a report from the National Audit Office (NOA).
The Treasury said PFI contracts ensured risk was borne by the private sector.
The NAO found 716 public projects were active under PFI and its successor PF2, with annual costs amounting to £10.3bn in 2016/17.
PFI projects will cost the taxpayer a further £199bn by the 2040s, it said.
The government said both PFI and PF2 improved public services.
The report was written before the collapse of Carillion, which held numerous public contracts, including those under PFI, from building schools to maintaining prisons and highways.
- Mapping Carillion’s biggest construction projects
- Carillion was left with just £29m before going bankrupt
PFI contracts were first introduced under John Major’s Conservative government.
Under such deals private consortiums build facilities like schools, hospitals and roads, in return for regular payments over as many as 30 years.
Their use proliferated under Tony Blair’s Labour government, but PFIs fell out of favour after the 2008 financial crisis, as the cost of private finance increased and as questions were raised over the costs of using this model.
Since then the Departments for Health and Education have used the new PF2s which the Treasury argues is more transparent and “better value for money”.
“Taxpayer money is protected… as the risks of construction and long-term maintenance of a project are transferred to the private sector,” a Treasury spokesperson said.
However, the NAO said there had never been a “robust evaluation” of the benefits.
It said the expected spend on one group of schools financed by PF2 were around 40% higher than the costs of a similar project financed by government borrowing.
It also said Treasury Committee analysis from 2011 estimated the cost of a privately financed hospital was 70% higher than a comparative project in the public sector.
The watchdog identified “additional costs compared to publicly financed procurement” incurred using PFIs.
For example, it said the capital raised through PFI cost 2% to 3.75% more compared to state borrowing.
“Small changes to the cost of capital can have a significant impact on costs,” the report said.
“Paying off a debt of £100m over 30 years with interest of 2% costs £34m in interest. At 4% this more than doubles to £73m.”
The union UNISON called the report “a scathing indictment of all that is wrong with PFI”.
Meg Hillier MP, chair of the Public Accounts Committee, said the NAO had found “little evidence” that PFI’s benefits offset its costs.
“Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change,” she said.
At Prime Minister’s Questions on Wednesday, Labour leader Jeremy Corbyn urged the government to end the “costly racket” of private sector firms running public services.
The government said PFI and PF2 had funded vital infrastructure projects like roads, schools and hospitals and had helped the economy.