A senior coalition minister has said that companies that made billions out of 'outrageous' and 'ghastly' Private Finance Initiative (PFI) contracts should be forced to repay the taxpayer.

The Cabinet Office Minister, Francis Maude, said that many of these PFI contracts imposed an unfair 'penalty' on the hospitals, schools and public services they were set up to provide.

The Telegraph reports that the Treasury and cabinet Office are now looking at ways to claw some of this money back for the benefit of the taxpayer. A Conservative back-bencher, Jesse Norman, is currently leading a campaign to get the firms to rebate £500 million back to the Treasury.

PFI is a way of setting up public-private partnerships (PPP), with the private company providing the initial outlay to get the project set up and moving and the public purse (taxpayer) paying for the services provided as well as paying back the initial 'loan' for the next 25-30 years. The whole scheme was a brainchild of the Tories and started in the 1992 under John Major. Initially condemned by Labour (by such worthies as Patricia Hewitt and Alistair Darling) they took it up enthusiastically on gaining power.

The Telegraph had already shown how contractors make £229 billion back on a £56 billion initial outlay. They also highlighted the case of Innisfree, the largest single PFI contractor, that owns interests in 28 NHS hospitals and 269 schools, only employs 14 people but whose chief executive has managed to amass a personal fortune of some £50 million since 1995.

"Some of the deals done were ghastly. Some of the deals we've come across, the people on the other side must have been laughing all the way to the bank," said Mr Maude "We are looking to see whether there are things we can do."

But whatever the evils of any particular contract they were just that, contracts. Written, legal and binding agreements drawn up between partners of equal standing. So it will be hard if not impossible to re-write them unless a clause allows it or some form of fraud or deception was exercised (and can be proved) at the time.

The government may have been forced to accept the terms due to other pressures. Or maybe they thought that a 'loss leader' set of contracts would pave the way for a revolution in PPP that would work out at better rates in the long term than raising the money in the more traditional way on the bond markets.

Even the RAF Future Strategic Tanker Aircraft is a project delivered by PFI run by AirTanker. with the RAF paying for air-to-air refuelling and transport missions as required. AirTanker can contract the aircraft out elsewhere for extra revenue.

Vince Cable has said in the past 'The whole thing has become terribly opaque and dishonest and it's a way of hiding obligations. PFI has now largely broken down and we are in the ludicrous situation where the government is having to provide the funds for the private finance initiative'.

I would hate to think that the ministers and civil servants that helped set them up and signed the paperwork had been naive and illiterate in business affairs.

If the contracts cannot be changed (anticipate a lengthy and very costly set of court cases if they are challenged) then a windfall tax could be considered, but that would just appear vexatious and opportunistic. It would also be interesting to see if there are also tax rate change allowance clauses in these contracts.

Comment Here!