PFI

Having worked for a long time in the local authority sector and been bemused by the whole PFI concept to me this story is about a time bomb that threatens to ultimately undermine many local authority services, especially in the school sector aswell as the health sector. Lets also not forget that local authorities are increasingly drawn into the health arena in terms of the development of their health and wealth-being responsibilities.

Have a good read of the way one deal underpinning this financially challenged trust has played out and then ask some pointed questions in your patch about the levels of risk and financial strain arising from your local PFI deals:

The Princess Royal hospital was one of the first hospitals to be born from the Private Finance Initiative (PFI) – the wheeze invented by John Major’s government to refurbish Britain’s dilapidated hospitals and schools while keeping the outlay off the Treasury’s current account in return for phased repayments to private investors over a period of several decades.

After the tender was put out in 1995 it was awarded by Tony Blair’s first government, which embraced PFI with gusto, in 1998. The winner was a consortium trading under the name of United Healthcare (Farnborough Hospital Ltd) consisting of Barclays Private Equity, developer Taylor Woodrow and Innisfree, a City investment fund with about 20 staff which has quietly become one of the country’s largest PFI players by backing projects to build 269 schools and 28 hospitals costing a total of £6.4bn.

David Metter, the 59-year-old founder and chief executive of Innisfree, is estimated to have made a personal fortune of about £60m from overseeing PFI investments on behalf of local authority pension funds.

There is nothing illegal in anything that these companies have done. But the rates of return on their investment are of an order that would make a pay-day loan company blush.

In return for their initial £118m outlay and the provision of services ranging from power to medical equipment, the consortia will receive payments of £1.2bn over 35 years. According the National Audit Office, the rate of return for the contractors is a handsome 70.6 per cent.