Labour government would bring PFI contracts 'back in-house'

Labour government would bring PFI contracts 'back in-house'

Labour could take Private Finance Initiative contracts worth billions of pounds back into the public sector under plans unveiled by shadow chancellor John McDonnell.

Mr McDonnell won loud applause at the party's annual conference in Brighton that the party would take the controversial contracts back in-house when it came to power. 

Conservatives denounced the plans as "unaffordable", while the head of the independent Institute for Fiscal Studies said that taking back the contracts would cost "an awful lot" in upfront payments.

But Labour Treasury spokesman Peter Dowd said that the policy would be "pretty self-funding" in the long term, as the state would no longer have to pay out huge sums each year to contractors.

It was too early to say what the upfront cost would be, but it would not run into "billions and billions", he said.

Aides later said that a review of all PFI deals, to be carried out after Labour takes power, is expected to find that most are appropriate for returning to public hands.

Mandatory bond-for-share swaps, approved by Parliament, would compensate the private firms involved, but would be far cheaper than the £200 billion cost to the taxpayer of continuing to pay out on the contracts over  the decades to come.

Introduced by former Conservative prime minister John Major in 1992, use of PFI was dramatically stepped up under Tony Blair's administration to help fund a huge wave of new hospitals and schools.

Under PFI, a private sector consortium funds, builds and maintains a facility on behalf of a public agency, then receives payments over the term of the contract, typically lasting 25-30 years.

The scheme has been challenged on value-for-money terms, as the NHS and other public bodies are forced to pay much more than the original construction cost of their properties, though defenders of PFI say it transfers the risk of major infrastructure projects onto the private sector.

Labour pointed to figures from the Centre for Health and the Public Interest suggesting that up to 31% of money paid to PFI companies for hospitals went to pre-tax profit.

Mr McDonnell told the Brighton conference: "The scandal of the Private Finance Initiative has resulted in huge long-term costs for taxpayers while providing enormous profits for some companies.

"Over the next few decades, nearly £200 billion is scheduled to be paid out of public sector budgets in PFI deals. In the NHS alone, £831 million in pre-tax profits have been made over the past six years.

"Jeremy Corbyn has made it clear that under his leadership, Labour will sign no new PFI deals. I can tell you today that when we go into Government we'll bring these contracts and staff back in-house."

The shadow chancellor was cheered as he confirmed that a Labour government would scrap university tuition fees, overturn Conservative trade union legislation and nationalise rail, water, energy and the Royal Mail.

Buoyed by Labour's performance at the June 8 general election, Mr McDonnell said that the party was ready to be "a government that can set the political agenda for a generation".

And he offered an olive branch to the party's Blairite wing, praising the record of the New Labour administrations which are often the butt of abuse from Corbyn-backers.

"In 1997, after 18 years of Thatcherism, when whole industries and communities across our country had been destroyed by the Tories and our public services were on their knees, it was the Blair/Brown government that recognised and delivered the scale of public investment that a 21st century society needed," Mr McDonnell said.

"We should never forget that we are part of that great Labour tradition and we should be so proud of it."

 Conservative Chief Secretary to the Treasury Liz Truss said that Mr McDonnell's plans would add billions of pounds to the £253 billion of spending promises already made by Labour since the launch of its manifesto.

"These unaffordable Labour promises wouldn't improve public services and the costs would just rack up and up," said Ms Truss.

"Working people would pay higher taxes and we would spend more and more on debt repayments instead of public services. It all shows that Labour just aren't fit to govern."

And IFS director Paul Johnson told BBC2's Daily Politics: "This is not about just getting rid of austerity or moving back to where the last Labour government was. This is a root and branch change to the way the economy has worked since at least the 1970s.

"Completely consistent with what was in the manifesto, we are looking at a state, a government much, much bigger than anything we have experienced in a generation or two."



CBI director-general Carolyn Fairbairn told Mr McDonnell that "the world is watching" and warned international investors could be put off by his plans.

Appearing alongside the shadow chancellor at a fringe event, she told him Brexit was already creating "really significant uncertainty" and there are "real questions about what kind of an economy we are and what kind of a place we are to set up a business".

She warned that a "nationalisation agenda" with doubts over whether there would be a "market rate" paid, state interventions on wage levels and rising corporation tax would all have a "chilling effect" on investment.



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