Labour demands answers from Hammond over PFI – John McDonnell

Today the Shadow Chancellor has written to Philip Hammond demanding answers over the sustainability of PFI.

At the Labour Party Conference last September, John McDonnell announced that the next Labour government will bring all PFI contracts back in-house. 

Recent scandals such as Carillion have only further made the case that there is an urgent need for the Government to act to protect workers, taxpayers and public services.

The full text of John McDonnell’s letter to Philip Hammond can be found below:

Dear Chancellor

Following yesterday’s statement from the Official Receiver that over a thousand Carillion workers have now been made redundant since liquidation, I am writing regarding the ongoing questions about the sustainability of PFI and outsourcing companies.

You will be aware that I have asked tabled parliamentary questions to your department regarding the relationship between HM Treasury and Carillion during the period leading up to Carillion’s collapse.

To date, I have not received a response to my question of 17 January regarding the sale of Carillion’s PFI projects. Responses to others have been clearly inadequate, including your department’s refusal to reveal what estimates it has made of the total cost to the public purse arising from the liquidation of Carillion.

I believe it would now be useful to put on the public record what role HM Treasury played in the award of any PFI contracts which have been signed with Carillion as an SPV equity-holder since 2010.

The November 2016 document ‘Treasury approvals process for programmes and projects’ clearly states: “All PPP projects [including PF2], irrespective of size, require approval by Treasury”.

The National Audit Office recently reported that HM Treasury has not been collecting outturn data in order to quantify whether benefits from using private finance exceed the higher financing and other costs.

They also report that HM Treasury withdrew its ‘Value for Money’ spreadsheet and guidance in 2012, promising to publish an updated version of both in 2013; HM Treasury informed the Committee in 2014 that it would not publish a new spreadsheet but would publish new guidance by end of 2014: this did not happen.

Can you put on record whether, in order to ensure best practice and value for the taxpayer, your department is:

(a)    still planning to published revised ‘Value for Money’ guidance, and

(b)    collecting outturn data on private finance contracts in order to compare benefits with additional finance costs.

Furthermore, you will be aware that the official Government website states:

“We collect summary data on Private Finance Initiative (PFI) and Private Finance 2 (PF2) projects every year” while data.gov.uk states: “We publish data on all current Private Finance Initiative (PFI) projects once a year”.

The latest data on PFI currently available on the Government website appears to be accurate to 31 March 2016, uploaded December 2016.

Can you say when an updated database of current PFI projects will be available online?

Given that Treasury approval is also required for certain major projects and programmes, in the specific case of Carillion what assessments, if any, were carried out by the Treasury during your time as Chancellor of Carillion’s financial capacity as a company to deliver on the billions of pounds of contracts it held at the time of its liquidation?

Finally, you will be aware of the involvement of other Government departments in the promotion of public-private partnerships in other countries.

Following the problems with such schemes in this country, including criticisms by the NAO, have any officials from your department met with colleagues elsewhere in Government to discuss the need for a different approach to be taken abroad?

Yours ,

Ends

Notes to editors:

• ·                    Labour has previously announced an end to PFI and PF2 on our return to Government
• ·                    At Labour Conference 2017 John McDonnell announced that not only would no new deals be signed, existing ones would be taken back in-house: including the following:
  • o   The presumed preferred approach would be taking into public ownership the Special Purpose Vehicles through a bond for shares swap, with the rate of compensation to be determined by Parliament as with other Labour public ownership policies. Shares held in countries deemed tax havens may be compensated at a different rate from others. Differential compensation rates for equity held by pension funds will also be considered.
  • o   Returning ownership of assets to the relevant public sector bodies.
  • o   Developing a new public sector design/construction model based on public investment that enhances public sector capabilities to plan, design, manage and operate public infrastructure.
  • o   Enshrining the rights of staff to have rights kept or enhanced to comparable public sector standards on transfer to public sector bodies.
  • o   Ending the UK Government’s financial and advisory support for similar projects overseas.

• ·         The legal basis for the bringing of Special Purpose Vehicles into public ownership would be an Act of Parliament, as with Labour’s other public ownership policies. The High Court, Court of Appeal and European Court of Human Rights have confirmed the right of Parliament to take into account public interest considerations, and decide that such considerations may call for less than reimbursement of the full market value. In general the equity value of Special Purpose Vehicles shares are not publicly listed, and their value should not be confused with the capital value of the projects or the total outstanding unitary payments.
• ·         Ownership of Special Purpose Vehicles will not only regain control of the contracts but will lead to significant savings to the taxpayer. TheNational Audit Office recently reported significantly higher costs of project delivery via private finance.
• ·         Labour has considered alternative policy solutions, including a windfall tax, but are clear that the latter would be a short-term measure that would fail to tackle any of the fundamental problems with PFI which make it so expensive, and would leave ownership of projects and expensive contracts in the hands of private owners for – in some cases – several decades.