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The escalating costs of Public-Private Partnerships in the UK (II): who will pay the bill?

Added 14 Nov 2019
This is the second of two blogs on PPPs in the UK. Read the first part here.

Proponents of public-private partnerships (PPPs) often cite “risk sharing” as a benefit of PPP contracts, as it allows for “costs-sharing” and “profit-sharing” between the public and private entities. The recent figures on the escalating costs of PPPs in the UK, however, paint a much clearer picture of who is actually paying the bill and who truly benefits. 

Taxpayers are paying the bill. Investigations revealed that, as of September 2019, by the end of UK PFI deals, these will have triggered additional costs of £5bn from the public sector budget– and therefore, taxpayers’ money. As Unite assistant general secretary Gail Cartmail pointed out that “PFI schemes cost taxpayers billions of pounds.” 

This echoes the Carillion scandal. In January 2018, the second largest construction company in the UK collapsed and its 450 government contracts along with it, many of which were PFI contracts in sectors as diverse as health, education, local authorities, civil aviation, prisons and more. Carillion redundancies cost taxpayers £65m, adding to the expected £100m taxpayers' money needed to complete several of Carillion’s projects including the Royal Liverpool Hospital and the Midlands Metropolitan Hospital. 

Workers have paid a high cost for PPPs. As highlighted by the Jubilee Debt campaign, staffing levels and service standards have declined in the UK a result of PFIs, since spending on variable costs (staffing and services) has been reduced to meet inflation-linked debt repayments. This was the case for the Queen Alexander Hospital, where jobs were cut to balance hospital budgets.

Citizens deprived of social services are paying the price. All too often PPPs are more expensive and carry greater risk than public provision. This creates additional fiscal constraints, which undermine the State’s capacity to deliver on public services, reduce inequalities – especially gender inequalities – and prevent the necessary investments to fight against climate change and for the environment. When, for example, hospitals cannot meet the maintenance costs and maternity units close or when schools face escalating costs, patients and families pay the price of PPPs.

PPP managers and investors are benefiting from PPPs. Less than a year before its demise, Carillion paid a record dividend of £79 million to its shareholders, the majority of which was paid on 10 June 2017. More than one year after its liquidation, no action has been taken against the company’s directors or senior managers who are responsible for its collapse.  Instead, investigations have been delayed. In fact, returns to investors in excess of 25% are not uncommon in PFI projects. The “cloak of secrecy” and commercial confidentiality continues to protect private investors and the profits they have made through PFIs.

CSOs have, for many years, raised awareness of the fiscal costs of PPPs, as well as their lack of transparency and accountability. These scary new figures add to the growing pile of evidence. If the Government truly believes that PPPs are harmful, the UK should go one step further and fight against the promotion of PPPs by the UN, the EBRD, the EIB and the World Bank, where the country enjoys strong shareholder power. Such policy coherence is critical to avoid exporting a model which has failed.