Private investors make £140m from Yorkshire PFI deals
Private investors have made at least £140m in dividends from building public schools, leisure centres and social housing in Yorkshire and the Humber.
BBC News has analysed the details of 45 Private Finance Initiative (PFI) contracts signed by local authorities.
Leeds City Council has entered into the highest number of PFI deals of any local authority in England.
The authority said the scheme was “the only realistic way” to fund the projects across the city.
The government stopped councils making new deals in 2018 after Parliament raised concerns about value for money.
Most PFI deals were agreed under the last Labour government of 1997-2010 as they were seen as a way to build public buildings without the taxpayer having to finance the initial cost.
Under a PFI scheme, a private company finances the initial construction of a new public building such as a leisure centre.
The local council then pays an annual fee to the private company, typically for 30 years, covering the construction, maintenance and finance costs of the project.
The building remains under the ownership of the company throughout the contracted period before returning to the ownership of the local authority.
Critics say the contracts locked taxpayers into poor-value deals.
“PFIs are the biggest rip-off that you’ve never heard of,” said Matthew Topham, lead campaigner for the We Own It group.
“If local councils had built these projects instead, taxpayers wouldn’t be on the hook all the way through till 2040 paying out on these contracts, [as well as] investors who are often based overseas”.
The Swarcliffe estate in Leeds was regenerated after the local council signed a PFI deal in 2005 to renovate 1,000 homes across the area. At the time, it was one of the biggest PFI projects in England.
The capital cost of the project was £105m but the council is likely to have to repay a total of £282m to Yorkshire Transformations, the private company responsible for the PFI, until 2035.
Companies House records show that Yorkshire Transformations has paid out £7m in dividends to shareholders since the start of the PFI contract.
Yorkshire Transformations is partly owned by the housing association Yorkshire Housing.
A spokesman told the BBC: “As a not-for-profit organisation, we invest the money we receive from the Swarcliffe PFI contract into upgrading our existing homes as well as building new affordable homes across Yorkshire.”
Community ‘transformed’
Ken Hill, who runs the Swarcliffe Good Neighbours Association, said the PFI scheme had brought about substantial change for residents across the estate.
“This is a community on the up, and Swarcliffe has transformed itself and we’ve a wonderful community spirit, largely because of the amount of money Leeds City Council have put into the project,” he said.
In total, Leeds City Council signed 14 PFI deals between 1999 and 2011, which could see taxpayers repay £3bn, the largest amount of any local authority in England.
Sheffield comes a close second in the national league table with PFI liabilities of £2.8bn. A contract to build six schools in Sheffield has returned dividends worth £12.2m since being signed in 2000.
And in Rotherham, which sealed almost £1.5bn in PFI deals, one scheme to build five leisure centres across the district has paid out dividends to investors worth £720,000.
PFI deals are putting further pressure on the finances of local authorities which are already stretched because of cuts to central funding and a rise in demand for services.
Leeds City Council said in December it had a budget deficit of £65m, which would likely result in the authority having to cut jobs and services.
The authority’s statement of accounts for 2022/23 revealed it would probably have to pay out more than £30m in the next year to manage the interest costs alone on their existing PFI deals.
The council said in a statement: “In the 1990s and 2000s submitting bids to the government for PFI credits was the only realistic way of attracting funding to resource key projects across the city.”
The number of deals it had struck was “testament to the success of the arrangements the council established to bid for PFI credits”.
It added that all of its PFI contracts had been “financed through competitive market interest rates that were available at the time”.
Announcing the effective abolishment of PFI deals in the 2018 Budget, the then Chancellor Philip Hammond said: “We will honour the existing PFI contracts but the days of the public sector being a pushover must end.”
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