Skip to main content

Excessive PFI profits

HM Treasury 'in dark' over 'excessive' PFI profits
By Rob Cave, BBC News

HM Treasury is failing to monitor "excessive" profits from the selling-on of PFI (private finance initiative) equity, the BBC has been told.

One industry analyst says its "inadequate" records do not reflect the billions of pounds made in the so-called secondary PFI market.

Critics, including some MPs, say the taxpayer should benefit from a share of these additional profits.

In a statement the Treasury said it had some information on most sales.

Criticism about the lack of information held by the government comes as two influential parliamentary committees prepare to take an in-depth look at PFI.

Today the Treasury Committee will hear evidence in its ongoing inquiry into the future of PFI, asking whether it has been value for money for the taxpayer. The following day, the Public Accounts Committee will look at the lessons learned so far from the roll-out of PFI.

More than 700 hospitals, schools, prisons and other public sector projects have been built under the PFI scheme.

But in many cases, the construction and investment companies involved have sold on their equity shares to infrastructure funds on the secondary PFI market.

HM Treasury keeps a database of such transactions, but according to analyst Dexter Whitfield, it is out-of-date and contains just a fraction of the information it should.

In a report produced by the European Services Strategy Unit think tank, Mr Whitfield said: "Government monitoring of the sale of equity in public private partnership companies is inadequate, infrequent and underestimates the scale of transactions.

"Meanwhile, banks and construction companies are ratcheting up large profits extracted from what is ultimately publicly-financed investment."

In a statement, the Treasury said: "The Treasury collects and updates data biannually from departments on changes of PFI share ownership, and this information is published on our website."

"We now have some form of equity holder information on around 81% of PFI projects."

In the case of the Calderdale Royal Infirmary in Yorkshire, Mr Whitfield said the Treasury database held no information at all on secondary equity sales.

But after scouring company accounts and other documents, he found shares in the hospital had changed hands nine times since 2002.

The BBC asked five of the companies which had sold equity in Calderdale Royal to disclose the profit they had made from the deals, but was told the information was commercially confidential.

'Wealth machine'
As part of a comprehensive piece of research into the market, Mr Whitfield discovered the average profit margin on PFI equity sales was more than 50%.

Analysing a sample of 154 projects, he found profits of more than £500m. If the same level of profit had been achieved by all PFI equity transactions, he estimates private sector profits would stand at £2.2bn.

Describing the profits as "excessive", he said: "It's a wealth machine. It's not necessarily printing money, but it's virtually that, given the scale of these profits."

His call for a clearer picture of the market was echoed by the chair of the influential Public Accounts Committee, Margaret Hodge, MP.

"There has to be transparency around the system, so that if there is some profit over time in the funding of these PFI contracts, that profit can be shared between the taxpayer and the private investor," she said.

Another Public Accounts Committee member, Ian Swales, MP, said the large profits made raised serious questions about whether the deals to finance, build and maintain hospitals and schools under PFI were good value for money for the taxpayer in the first place.

"By definition, that means the taxpayer got a bad deal at the start, or there wouldn't have been these super-profits to be made."

David Metter, chairman of the Public Private Partnership Forum, an industry body for the PFI industry, said the profits made were a fair reflection of the risks taken on by the financiers and builders of the projects.

"The private sector is efficient and has demonstrated in the past 15 years that it can deliver 700 projects on time and on cost," he said.

"It would be extremely surprising if the government decided to do it another way."


File on 4 is on BBC Radio 4 on Tuesday 14 June at 2000 BST, and Sunday 19 June at 1700 BST. Listen again via the BBC iPlayer or download the podcast.

The ESSU Report, The £10bn Sale of Share in PPP Companies, can be purchased from Spokesman Books. It follows on from Professor Whitfield's previous study, Global Auction of Public Assets: Public sector alternatives to the infrastructure market and Public Private Partnerships

Comments

Popular posts from this blog

Jeremy Corbyn: Internationalist at Work

Another featured article from the latest issue of The Spokesman comes from the 2011 edition of J. A. Hobson's Imperialism. Jeremy Corbyn penned the book's foreword, which we reprint here under the title 'Internationalist at Work'.
As a separate point of interest, we also include this comparative image of the logo of publication The Week, circa 1960s, and Corbyn's recent campaign logo. Cut from the same cloth? 





Internationalist at Work
J. A. Hobson wrote his great tome at a different age. His thoughts were dominated by the zenith of the British Empire and the Boer War. The outcome of the war demonstrated Britain’s then ability in sustaining global reach, since Elizabethan times, but also its extreme vulnerability. At home the poor physique of working class soldiers led to Haldane’s investigation into working class health and living conditions. The difficulty in containing the rebellious Boers, and the huge opposition to the war, encouraged further doubts about the whol…

'Not as dumb as he looks' - Muhammad Ali on Bertrand Russell

In his autobiography The Greatest: My Own Story, Muhammad Ali recounts how Bertrand Russell got in contact with him, and their ensuing correspondence:


***
For days I was talking to people from a whole new world. People who were not even interested in sports, especially prizefighting. One in particular I will never forget: a remarkable man, seventy years older than me but with a fresh outlook which seemed fairer than that of any white man I had ever met in America.
My brother Rahaman had handed me the phone, saying, ‘Operator says a Mr. Bertrand Russell is calling Mr. Muhammad Ali.’ I took it and heard the crisp accent of an Englishman: ‘Is this Muhammad Ali?’ When I said it was, he asked if I had been quoted correctly.
I acknowledged that I had been, but wondered out loud, ‘Why does everyone want to know what I think about Viet Nam? I’m no politician, no leader. I’m just an athlete.’
‘Well,’ he said, ‘this is a war more barbaric than others, and because a mystique is built up around a cham…

Vanunu update

Dear Friend and Vanunu supporter,

It is a long time since we last sent you any news of Mordechai for which we apologise. It has been a complicated and difficult period particularly with Mordechai not wanting the campaign for his freedom to continue. However, we thought now was the time for an update, because if you hadn't seen the relevant issues of the Morning Star, Scottish Herald or, just this week, The Guardian, you probably wouldn't be fully aware of what Mordechai had been suffering, once again, at the hands of the vindictive and malicious Israeli authorities.

For some while Mordechai has been threatened with a return to prison for speaking with foreigners; including friends, supporters and journalists. For breaking this restriction he was eventually sentenced to six months in prison. He appealed against this and at a hearing of the Supreme Court, some months ago, this sentence was reduced to three months. As an alternative Mordechai was offered to do a period of Community…