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High costs of privately financed schools exposed

Parliament
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The government’s latest batch of privately financed school schemes is costing it 40 per cent more than could be achieved through direct borrowing, its spending watchdog has warned

A report by the National Audit Office said research had shown private finance costs were inflated by the higher cost of borrowing, insurance fees, consultancy bills and other factors.

PF2 was introduced in 2012 to replace PFI amid heavy criticism of the procurement system following the global economic crash. A range of measures were included to bring down risk, such as reducing the debt-to-equity ratio of projects and excluding certain services from deals.

But the NAO report said: ‘The first PF2 projects which progressed were PF2 schools – the contract and project documents used for these deals are slightly altered versions of PFI documents, demonstrating the limited changes between PFI and PF2.’

It added: ‘Our analysis of these data for one group of schools shows that PF2 costs are around 40 per cent higher than the costs of a project financed by government borrowing. The Treasury Committee undertook a similar analysis in 2011, which estimated the cost of a privately financed hospital to be 70 per cent higher than the public sector comparator.’

After Carillion lurched into liquidation earlier this week, Labour MP Stella Creasy called for an end to governments handing out private finance contracts. The collapsed £4 billion-turnover construction giant had closed 66 public-private partnership contracts and boasted of being ‘one of the world’s leading companies in delivering these projects’.

‘I hope this is a moment where everything changes,’ Creasy told BBC’s Newsnight.

‘We were told the reason for using these companies was to transfer the risk of construction to the private sector. But the Carillion example blows away that myth and leaves us with some very expensive contracts.’

Perkins + Will EMEA director Jack Pringle told the AJ that, as well as handing too many risks to the taxpayer, PFI hampered good design. He said: ‘Architects want to design great buildings that satisfy client needs – which is more likely with a procurement system that does not distance them from clients.’

A government spokesperson said: ‘Many vital infrastructure projects like roads, schools and hospitals are paid for by PFI and PF2, stimulating our economy, creating jobs and delivering better public services.

’We have reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money.

’Taxpayer money is protected through PFI and PF2 as the risks of construction and long-term maintenance of a project are transferred to the private sector. Private finance is more transparent, with information and data published by government annually.’

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