Calls for windfall tax as data shows PFI profits will equal 20% of extra £1.3bn for schools

This article is more than 2 years old

This article is more than 2 years old

Schools will have paid £4.8bn to private finance initiative operators by 2020, generating an estimated £270m of profits for the companies from taxpayer money, analysis has revealed.

The study bolstered calls for a windfall tax on the PFI firms that build and run schools, with the figures also showing that they will have cashed £60m in corporation tax cuts, including £27m in the four years to 2020.

The profits for PFI firms involved in schools will equal about a fifth of the extra £1.3bn given to schools in government funding last year, according to research by the Centre for Health and the Public Interest (CHPI) thinktank.

Q&A What are PFI and PFI2? Show Hide Private finance initiative deals were introduced in 1992 under John Major but became widespread under Tony Blair. Typically used for public buildings and infrastructure, PFI schemes introduce private investors into the design, building, finance and operation of new facilities which are then rented back by the state. Why did it become widespread?

PFI allowed ministers to build schools and hospitals with minimal upfront costs to the Treasury. It was a way to commission popular projects without immediately hitting the public purse. Why is it controversial? It massages public finances in the short term, but holds a higher long-term cost. In 2013-14 about £10bn was spent on servicing PFI contracts, with about £4bn of this on debt and interest. Where is the money going? Firms that have built NHS hospitals using PFI deals have made pre-tax profits of £831m over the past six years, according to the Centre for Health and the Public Interest. Firms such as Carillion, Interserve and Kier Group are among the big players. What is PFI2? Created in 2010 by George Osborne, PFI2 aimed to cut long-term taxpayer liabilities and trim excessive profits. In essence, it is meant to be “less private and more public”, with the state taking stakes of up to 49%. A board is appointed and annual accounts printed. It cuts back on bank financing (from 90% to 80%), improves transparency and accountability, and speeds up procurement to cut costs. PFI2 deals aim to be smaller, dealing more with facilities and services, rather than building. The government calls it PF2, not PFI2.



The Labour MP Stella Creasy has campaigned for a windfall tax on PFI companies, which MPs may vote on this Wednesday as an amendment to the finance bill.

So far, Liberal Democrat, Plaid Cymru and Scottish National party MPs have signed the amendment, as well as many of Creasy’s Labour colleagues, including Wes Streeting, Lucy Powell, Angela Eagle and Dan Jarvis.

Supporters of the tax have argued that PFI companies are making “windfall” profits. Corporation tax was 30% when the majority of their contracts were negotiated but is now 19% and due to drop as low as 17% by 2020.

Trade unions have backed calls for the tax, including teachers’ unions. Kevin Courtney, the joint general secretary of the National Education Union, said the sums were “shocking, particularly in the context of the huge real-terms cuts to school funding”.

“The collapse of Carillion has brought into sharp focus the toxic legacy of PFI,” he said. “PFI-related cost is a major problem for many schools, with the expense of PFI compounded by eye-watering charges made by PFI companies to maintain schools.”

Unison, one of the UK’s largest trade unions, has emailed Labour MPs to ask them to back Creasy’s amendment. Its general secretary, Dave Prentis, said: “Eye-wateringly high PFI payments are threatening to overwhelm our already cash-strapped public services.

“Shadowy PFI firms just keep on hitting the jackpot, making millions more than they’d ever hoped to because George Osborne slashed their tax bill a few years back. It’s time for a windfall tax on the companies cashing in at our expense.”

School cuts and underfunding were a key issue at the June 2017 election, where Conservative policies included cutting funding for free infant school meals.

The backlash, including from Conservative MPs who saw schools in their constituencies face severe funding shortfalls, resulted in the Department for Education announcing an extra £1.3bn for core school funding in July.

Creasy, the MP for Walthamstow in north-east London, said MPs had a chance to reclaim cash for their schools by voting in favour of a windfall tax.

“When schools in Walthamstow tell me teachers are having to buy basics as their budgets are so tight, it is horrifying to think that nearly one pound in every four pounds the government claims it’s giving to schools in extra funding is going out the door and into the pockets of PFI companies instead as profit,” she said.

“There’s only a handful of these companies who own our schools and hospitals in this way, but the damage these contracts are doing now to budgets is crippling and an urgent problem we have to solve as part of relieving the funding crisis schools and hospitals face.”

The rate of corporation tax is included as part of the government’s value-for-money assessments when deciding whether to use private or public finance to pay for schools, but this has not been reassessed since 2012 and corporation tax rates have since been slashed.

A National Audit Office report last month found schools built using PFI were 40% more expensive than the public sector alternative.

The CHPI research showed taxpayers had given £329m in pre-tax profits to PFI schools schemes in just six years, and this was predicted to rise to just under £600m by 2020.

Taxpayers will pay £32bn over the lifetime of these contracts, including for the building and refurbishment of schools, as well as cleaning and repairs, according to the CHPI’s figures.

In just eight local authorities, schools will pay £252m in interest alone over the next two to five years, in payments which are ringfenced and cannot be reduced.

The DfE provides much of the funding for PFI schemes to local authorities in the form of PFI credits; however, local authorities must cover any shortfalls from their own budgets.

A DfE spokesman said: “These costs relate to the running of over 800 school projects over a period of four years. PFI contracts are only ever taken out to finance school projects when there is clear value for money in doing so.

“Thanks to our reforms to schools 1.9 million more children are now in good or outstanding schools than in 2010, and the latest Ofsted figures show 87% of children are in good or outstanding schools compared to 66% in 2010.”



The shadow chancellor, John McDonnell, has said a Labour government would bring billions of pounds’ worth of PFI projects and their staff back under government control.

At a meeting of Labour activists this month he hinted that under a Labour government PFI contracts could be renationalised without compensating investors, saying: “Parliament will determine whether or not we provide compensation and on what level.”

The PFI scheme was introduced by John Major in 1992, but Tony Blair’s Labour government significantly increased the use of such contracts, using them to fund schools and NHS hospitals.

Creasy said she believed a windfall tax would reclaim more taxpayer money sooner. “Due to how they are worded, cancelling these existing PFI contracts would cost more than it would save, but when we see the unexpected windfall they have also made thanks to corporation tax changes, it’s clear where we can put pressure on these firms,” she said.

“If the government won’t act to renegotiate these contracts as a matter of urgency and help out schools facing these extortionate rates of interest, parliament must show it’s prepared to legislate to get cash back for our public services. This Wednesday MPs have the chance to show these companies we will take on these legal loan sharks of the public sector by voting for these amendments.”