Audit Office rejects Stormont excuses for failing to pursue savings on £7bn PFI debt

Stormont departments have been slammed for failing to carry out regular savings reviews on NI’s massive Private Finance Initiative debt – despite the Audit Office demanding it of them since early 2014.

By The Newsroom
Wednesday, 16th October 2019, 7:30 am
The building of Invest NI HQ under PFI was projected to cost £120m over 25 years. The organisation says this brings savings of £1.2m to £1.9m annually
The building of Invest NI HQ under PFI was projected to cost £120m over 25 years. The organisation says this brings savings of £1.2m to £1.9m annually

And the News Letter can today confirm that the total cost of all PFI contracts when paid off will be £6.8bn – almost four times the initial £1.73bn construction cost paid by the private investors to whom the taxpayer is still paying massive repayments.

The annual cost of PFI repayments to NI is currently £264m, with annual payments having jumped up by £18m a year between 2014 and 2018.

The controversial means of raising finance for public projects, such as schools, hospitals and roads, saw over 30 Private Finance Initiatives (PFIs) struck in NI between 1995 and 2010 – essentially huge mortgages that had to be repaid over terms ranging from 15 to 30 years.

Former Cabinet Minister Penny Mordaunt told JPI Media that PFI schemes have crippled hospital finances. Photo: Ian Nicholson/PA Wire.

Critics say the difference between the capital outlay and the total repayments to cover them – over £5bn for NI – is an illustration of what scale of savings could have been made if cash had been generated from normal government sources. As a result, PFIs have been largely abandoned by government.

In January 2014 the NI Audit Office recommended that the Office of First and Deputy First Minister (OFMDFM), now the Executive Office (TEO), take the lead in overseeing a programme to both make regular detailed reports about PFI spending and regarding potential efficiencies that could be found.

But neither department was able to show either regular or detailed reports in either area, citing the suspension of the Assembly in 2017 as a hindrance.

The Audit Office, however, rejected the excuse.

TUV leader Jim Allister said that, bearing in mind the focus on RHI, it is "disconcerting" to see Stormont departments ignoring recommendations by the Audit Office to press for PFI savings. Photo: Colm Lenaghan/Pacemaker Press

“We would expect recommendations arising from our reports and those of the Public Accounts Committee to be followed through, unless a case is made by the relevant organisation justifying non-implementation,” a spokesman said. “Despite the absence of the Northern Ireland Assembly, we would still expect all departments to maintain regular and comprehensive information on both PFI spending and PFI efficiency reviews.”

TUV leader Jim Allister slammed the approach by the departments.

“At a time when public attention is returning to Stormont squander over RHI, it is disconcerting to see that in respect of the massive financial commitment on PFI schemes there was a dismally lax approach to oversight and cost saving,” he said.

“It is clear that Audit Office recommendations back in January 2014 for OFMDFM and Finance to proactively review PFI spending, with a view to making much needed efficiency savings, were largely ignored.

“There can be no excuse for this careless attitude to saving public money, so evident in the RHI scandal.”

Despite the Audit Office charging OFMDFM to take the lead in reviewing savings on PFI projects in 2014, the department still insists each Stormont department is individually responsible for initiating a review into its own PFI projects.

‘OFMDFM told to take the lead in 2014, but still insists each department is responsibile for itself’

In January 2014 the NI Audit Office report on PFI noted that although England and Scotland had published details of both PFI savings already made and further potential savings, Northern Ireland had “no strategic programme” to do the same.

One Audit Office recommendation placed a special responsibility on OFMDFM, now The Executive Office (TEO): “Currently there is no coordinated efficiency review programme of operational PFI contracts. In order to assess the scope for efficiencies and savings from operational PFI contracts and to maximise the opportunities to realise value for money savings, we recommend that each department initiates an efficiency review programme of its operational PFI projects, including those in their Arm’s-Length Bodies, within a common approach to be developed by OFMDFM through the Strategic Investment Board. The outcomes and savings achieved should be regularly reported to the Assembly.”

Asked to clarify how it had lived up to its responsibilities, almost six years after the Audit Office report, TEO told the News Letter that data for PFIs in 2013/14 was announced once through a Written Ministerial Statement in the Assembly in April 2015 as part of the reporting on the Investment Strategy.

“Further reports had not been finalised prior to the dissolution of the Assembly and therefore could not be reported to the Assembly or its statutory committees,” a spokesman said. “Reporting to the Assembly will recommence when the Executive is restored.”

It added that data for NI is included in “UK-wide reporting overseen by HM Treasury”.

Contrary to the Audit Office recommendation, it also distanced itself from any proactive strategic management responsibility for PFIs.

“The management of each PFI contract is a matter for the contracting authority,” he added. “The Strategic Investment Board (SIB) [for which TEO is responsible] is available and willing to carry out reviews of individual PFI contracts at the request of any Department, to determine whether there are specific opportunities to improve standards or save money, and to ensure contract managers are aware of best practice guidance.”

The Audit Office’s first 2014 recommendation was to place responsibility on the Department of Finance (DoF) to regularly provide the Executive, the Assembly, and its Statutory Committees with “more transparent, robust and comprehensive analysis of current and future PFI commitments, as well as other borrowings”.

Asked to clarify how it had met this responsibility, a spokeswoman for DoF highlighted PFI references in one annual Stormont Budget report to the assembly - for the year 2016/17.

“It is anticipated that this analysis will continue to be provided in local Budget processes once an Executive is restored,” she added. Other borrowings and interest repayments by Stormont are all included in the Public Income & Expenditure Account, she said, which is laid in the Assembly each year and published online.

She also pointed out that details of NI’s PFIs are published on the generic UK-wide list, again online.

DoF has only one PFI project, she said, online access to Land Registry information. A review in 2018/2019 prior to a two year extension as part of the contract negotiations secured a significant reduction of £1.9m over that period, she added.

PFI charges often include debt and interest repayments, shareholder dividends, asset maintenance, and in some cases other services like cleaning. Previous controversial PFIs in Northern Ireland have been the Invest NI HQ and the Royal Victoria Hospital car park.

‘Taxpayers across UK shelling out billions more than planned’

The JPI Media Investigation has found that taxpayers right across the UK are shelling out billions of pounds more than planned for schools, hospitals and other projects built through the controversial deals with private companies.

Extra costs and rocketing inflation are set to add at least £4bn to the overall price tag of Private Finance Initiative (PFI) schemes, according to figures obtained from hundreds of public bodies.

Penny Mordaunt, the former Defence Secretary (pictured right), told JPI Media that PFI schemes have “crippled hospital finances” as it can be revealed hospital bosses in her Portsmouth North constituency will pay out an extra £700m for a hospital expansion scheme signed under the Labour government in 2005.

JPI Media Investigations can also reveal that in England:

• An NHS maternity unit built and run by a private company was closed after just 16 years but is still costing the taxpayer millions of pounds;

• A police force in the South East is trying to think up new uses for a mothballed custody suite it is still paying for;

• Expensive maintenance contracts have seen one police force billed £884 for an extra chair.

With some PFI schemes set to continue into the 2040s, trade union leaders and public sector campaigners have called for urgent action.

Unite assistant general secretary Gail Cartmail said the “ever-escalating costs” of PFI are a “national scandal”.

She said: “The money that has poured into the pockets of profit-hungry financial institutions and private companies could have been much better spent directly on public service projects and infrastructure. PFIs are a rip-roaring example of out-of-control ‘bandit capitalism’.”

Many of the deals struck with the private sector in the late 1990s and early 2000s to replace crumbling buildings were pegged to the retail price index (RPI), the now-discredited high measure of inflation still used to calculate rail fare hikes and student loan interest payments.

This has risen faster than many councils, police forces or NHS trusts had planned for, lumbering them with ever-bigger payments at a time when they have seen their own budgets squeezed.

Alterations to buildings or services have also seen authorities hit with unforeseen costs.

Joel Benjamin, the co-founder of campaign group, The People versus PFI, said the rising bill highlights how the scheme is a “shocking waste of public money”.

The annual cost of PFI deals has this year hit £10bn - equivalent to a tax of more than £150 on every person in the UK.

Do you know of any PFI projects gone bad? email [email protected]