UK’s real debt figure ‘£35bn higher’ because of private finance deals

THE government should add £35 billion of debts from private finance initiative projects to its books to give a more honest picture of how far in the red the UK is, MPs demand in a report today.

Members of the Treasury select committee have hit out at the use of controversial PFI projects, which dominated public building projects for the past 15 years, and said they are an “extremely inefficient” method of financing projects.

The committee has also called on the UK government to renegotiate the contracts, which MPs believe would save the taxpayer £400 million a year at a time of swingeing cuts to public finances to bring Britain’s debt under control.

A £35bn increase in the deficit would see Britain’s debt rise by 2.5 per cent at a time when countries around the world are seeing credit ratings downgraded because of problems balance their books.

Tory committee chairman Andrew Tyrie said: “PFI means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that.

“We can’t carry on as we are, expecting the next generation of taxpayers to pick up the tab.”

He added: “We must first acknowledge we’ve got a problem. This will be tough in the short term but it should benefit the economy and public finances in the longer term.

“PFI should be brought on to the balance sheet. The Treasury should remove any perverse incentives unrelated to value for money by ensuring that PFI is not used to circumvent departmental budget limits.”

Under PFI deals, private enterprises typically fund the upfront costs of a project and the government or local authorities agree to refund those costs – with interest – over many years. The use of PFI has been controversial in Scotland since the Skye Bridge project, which ended up costing the taxpayer more than £90 million. The £148m Edinburgh Royal Infirmary looks set to cost the taxpayer £1.26bn.

When the SNP came to power in 2007 it was criticised for refusing to introduce new projects particularly schools. However, in recent years the party has adopted a new version of PFI known as not-for-profit distribution.

SNP MP Stewart Hosie, who sits on the Treasury select committee, said: “The SNP have long called for the UK government’s PFI debt to be put on the books so we can better understand the true extent of the mess Labour got the UK’s finances into.

“This buy now, pay later policy has landed UK taxpayers with massive, unnecessary bills.”

Last night a source close to Tory Chancellor George Osborne indicated the government was sympathetic to the report. He said the government was working to put the debts on the balance books and save money.

He said: “We have been saying for a long time that the PFI system we inherited was completely discredited and nothing more than a ploy to keep expensive projects off the balance sheet. That’s why we are reforming it so it is genuinely transparent and only used when it provides value for money for the taxpayer.

“So far we’ve announced plans to save £1.5bn off existing projects, abolished PFI credits so PFI doesn’t have an advantage over other forms of public procurement, strengthened the approval process for projects and published all our PFI liabilities. This transparency means PFI can no longer be hidden off-balance sheet like it was under Labour.”