Billions being spent on wasteful legacy PFI contracts across the country, new investigation shows Exclusive: One hospital trust has paid more than £5,500 for a new sink

By the JPI Media Investigations team: John Blow, Philip Bradfield, Isabella Cipirska, Tom Cotterill, Michael Holmes, Anna Khoo, Dean Kirby, Joel Lamy, Paul Lynch, Chris McCall and Claire Wilde

Taxpayers are shelling out billions of pounds in wasteful payments under controversial private finance initiative contracts that have locked hospitals, schools and police forces in the iron grip of contractors, it can be revealed.

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One hospital trust has paid more than £5,500 for a new sink, and a school has been charged more than £25,000 for three parasols, according to figures obtained by JPI Media Investigations, while a police force paid £884 for a chair.

Extra costs and rocketing inflation are set to add nearly £5bn to the overall price tag of PFI schemes, according to figures obtained from hundreds of public bodies.

Penny Mordaunt, the former Defence Secretary, is among those who have warned that PFI schemes have “crippled hospital finances” as it can be revealed hospital bosses in her Portsmouth North constituency will pay out an extra £700m for a hospital expansion scheme signed under the Labour government in 2005.

It can also be revealed that:

An NHS maternity unit built and run by a private company was closed after just 16 years but is still costing the taxpayer millions of pounds.

A police force in the South East is trying to think up new uses for a mothballed custody suite it is still paying for.

The cost of a hospital wing in Sheffield has shot up by £6m despite it having to close for nearly a year because of fire safety concerns.

With some PFI schemes set to continue into the 2040s, trade union leaders and public sector campaigners have called for urgent action.

‘Ever-escalating costs’

Unite assistant general secretary Gail Cartmail said the “ever-escalating costs” of PFI are a “national scandal”.

She said: “The money that has poured into the pockets of profit-hungry financial institutions and private companies could have been much better spent directly on public service projects and infrastructure. PFIs are a rip-roaring example of out-of-control ‘bandit capitalism’.”

Many of the deals struck with the private sector in the late 1990s and early 2000s to replace crumbling buildings were pegged to the retail price index (RPI), the now-discredited high measure of inflation still used to calculate rail fare hikes and student loan interest payments.

This has risen faster than many councils, police forces or NHS trusts had planned for, lumbering them with ever-bigger payments at a time when they have seen their own budgets squeezed.

Authorities trapped in contracts

The Private Finance Initiative sees private companies build and run key infrastructure, leasing it to the public sector through deals usually lasting 25 to 30 years. The agreements often include services such as maintenance and cleaning, but critics say this can leave public bodies paying high prices for basic changes to their buildings, and eye-watering costs for basic maintenance jobs.

In Leeds, almost all of the streetlights are to be replaced just seven years after work finished on previous upgrades. The city’s lighting underwent a multi-million pound conversion project between 2006 and 2012, under a PFI deal. The 25-year deal for the maintenance and replacement of street lights runs to 2031 and is set to cost a total of £326m.

Now the council is paying an extra £22m to convert nearly all its lanterns to more eco-friendly LED bulbs. However, the city council said converting 92,000 street lights to LEDs will save around £3.4m a year.

The £5,300 sink

A sink installed in an NHS hospital wing has also added more than £5,300 to the cost of a private finance deal that has ballooned by £6m despite the wing being closed for nearly a year over fire safety concerns.

A Freedom of Information request has revealed that the projected costs of the Northern General Hospital’s Sir Robert Hadfield wing in Sheffield, which was built under PFI in 2007, have increased by a staggering £6m since the deal was agreed.

Sheffield Teaching Hospitals NHS Trust said the rise was predominantly due to new works it has specifically asked to be carried out, in addition to pre-existing contract obligations.

Fire officers ordered the hospital to shut the wing, which replaced the old Vickers medical wards that were built in 1878, in December last year until remedial work could be carried out on its walls. Work started only eight months later in August and is expected to take “some months”.

‘A complete rip-off’

Council leaders in the early 2000s had little choice but to sign PFI contracts if they wanted to secure investment for their areas, according to one former chief.

However, a national campaign group says the public has every right to point the finger of blame at those who signed off on the PFI deals in the early 2000s. Joel Benjamin, co-founder of The People Versus PFI, said: “Somewhere along the line the consultants that provided advice on these deals, suggesting they represented value for money, need to be held up to the spotlight – and to some extent, the councillors and commissioners that signed off on PFI deals also need to be held to account.”

Megan Waugh, a researcher at the University of Leeds who is studying PFI, said: “These ‘extra charges’ are incredibly common and a complete rip-off.

“Public authorities trapped in PFI contracts are forced to use the PFI contractor who can and do charge over the odds for basic maintenance and repairs such as £24,000 to adapt a disabled toilet.”

£700 million for hospital expansion after costs spiral

Alterations to buildings or services have also seen authorities hit with unforeseen costs.

Taxpayers are set to fork out an extra £700m for a hospital expansion after costs for a critical redevelopment project spiralled.

Packed with 1,200 beds and 28 operating theatres, Portsmouth’s Queen Alexandra Hospital is one of the largest in the UK and its emergency department is one of the busiest in the country. But a £1bn deal struck to upgrade it almost 14 years ago will end up costing more than £1.7bn.

The £256m Queen Alexandra rebuild was completed in 2009 after being funded as part of a 32-year PFI deal in 2005. But after some £400m in repayments had been made, the scheme had to be renegotiated in the wake of the collapse of contractors Carillion last year.

The new deal is set to cost a further £1.3bn.

‘Financial scam.’

Gerald Vernon-Jackson, the leader of Portsmouth City Council, said: “PFI has never been fit for purpose. It was a financial scam to move spending off the government’s balance sheets. This is money that could and should be spent on patient care but instead is going into the financial firms who came up with this clever wheeze.

“That’s £700m that could have gone into caring for the people of Portsmouth but instead it has been wasted on this financial scam.”

Roger Batterbury, chairman of Portsmouth Healthwatch which scrutinises the hospital, has vowed to lobby for the Health Secretary Matt Hancock to take action. He added: “We will make raising this with the Health Secretary our number one priority. We will shout loudly for Portsmouth so patient care is put first.”

Mark Cubbon, chief executive of Portsmouth Hospitals NHS Trust, insisted the contract helped the hospital maintain its vast estate to a “high standard”.

Defending the arrangement, Mr Cubbon added: “I am absolutely determined to ensure we get the very best value for money from the ongoing PFI contract and that the quality of the service provided is the best it can be for our patients, staff and the taxpayer.”

Annual costs of PFI deals hits £10bn

The contracts were first introduced by John Major’s Conservative government in the 1990s, but were significantly expanded under Tony Blair’s Labour. The annual cost of PFI deals has this year hit £10bn – equivalent to a tax of more than £150 on every person in the UK.

The Government’s oversight of PFI was heavily criticised by MPs and trade unions after the spectacular collapse of outsourcer Carillion, which the National Audit Office estimates is set to cost taxpayers £150m.

The shadow Chancellor John McDonnell has said a new Labour government will end PFI and bring financing schemes “in house”. Labour said the cost of schools and hospitals has “ballooned” under PFI.

In setting out his post-Brexit investment plans at the Conservative conference last month, the Chancellor Sajid Javid said he would “bring in an infrastructure revolution” and invest an extra £13.4bn into public services.

His predecessor Philip Hammond abolished the PFI model in the wake of the Carillion collapse.

The Treasury said it was supporting health authorities to manage the costs of old PFI deals. A spokeswoman said: “As announced in last year’s Budget, we will no longer be using PFI and PF2 funding for new government projects.”

The history of Private Finance Initiatives

1992: The Private Finance Initiative is launched by John Major’s Conservative Government to finance new public sector buildings. The then Chancellor Norman Lamont said in the autumn statement: “Obviously, the interests of the taxpayer have to be protected, but I also want to ensure that sensible investment decisions are taken whenever the opportunity arises.”

1995: Britain’s first PFI project, Scotland’s Skye Bridge, opens. Within a decade, a public outcry over its high toll charges forces the Scottish Executive to buy the bridge from its private owners at a cost of £27m.

1997: Two months after New Labour sweeps into power, the Health Secretary Alan Milburn announces it is “PFI or bust” for the funding of infrastructure. Use of the model soars through the Tony Blair and Gordon Brown years. Two years later, Mr Milburn said there had been an “upsurge in confidence… that PFI can deliver the goods”.

1999: Alan Milburn says: “Since we came to office in May 1997, this Government has revitalised PFI so that today we can rightly say that it is a key tool in helping provide effective and good value public services.” Richard Smith, the editor of the British Medical Journal, denounces PFI it as “PFI: Perfidious Financial Idiocy” in an editorial revealing that repayments will be exorbitant.

2007: The value of PFI deals peaks, with private companies investing £8.6bn in public infrastructure.

2008: Use of PFI falls in the wake of the 2008 financial crisis.

2011: After the Coalition government comes to power, two parliamentary committees heavily criticise PFI. The Public Accounts Committee suspects companies are making excessive profits from the schemes, with chair Margaret Hodge MP warning that “tax revenue is being lost through the use of off-shore arrangements by PFI investors”. She said: “While PFI has delivered many new public buildings and services that might not otherwise have been built, it is far from clear that it has provided value for money. At present, PFI looks like a better deal for the private sector than for the taxpayer.” In the same year, the Treasury Committee also finds the full cost of a hospital built under PFI is set to be 70 per cent higher than a publicly funded one.

2012: The Chancellor George Osborne relaunches the PFI model as PF2, run in a similar way but with more details of the deals to be made public. He said: “Since we can all see now that the public sector was sharing the risk, we will now ensure we also share in the reward.”

2018: Sir Howard Davies, the chairman of Royal Bank of Scotland – a PFI investor – calls the model a “fraud on the people”. The National Audit Office publishes a key report finding little evidence of PFI’s benefits. The Chancellor Philip Hammond abolishes PFI but old schemes remain in place.