Labour would scrap Tory private-finance deals for all public services, Shadow Chancellor John McDonnell has declared.
Unveiling the surprise announcement at the party’s conference in Brighton, McDonnell vowed that no new PFI contracts would be agreed and existing ones would be brought “in-house”.
However, the party was accused of blurring its pledge when it put out a press release after the speech saying that current deals would be ‘reviewed’ and brought back into the public sector only “if necessary”.
It was also unclear how a Labour government would compensate firms which may be legally contracted to receive public cash - although Shadow Chief Secretary suggested the policy could be ‘pretty self-financing’.
A spokesman for McDonnell stressed that shareholders would be compensated with Government bonds, the value of which would be determined by Parliament, as with nationalisations.
PFI deals were a Conservative policy to use private sector cash to invest in schools and hospitals and other infrastructure schemes, and were adopted by New Labour under Tony Blair and Gordon Brown.
But in a big break with the party’s past, McDonnell signalled an end to the policy.
He claimed that an estimated £28bn is being lost to taxpayers through costs incurred by problems associated with PFI, including higher interest rates, bail outs and management fees.
“We’ll put an end to this scandal and reduce the cost to the taxpayers. How?
“We have already pledged that there will be no new PFI deals signed by us. But we will go further. I can tell you today, it’s what you’ve been calling for. We’ll bring existing PFI contracts back in-house.”
More than £200bn is due to be paid out in PFI in the coming decades as hundreds of long-term contracts unwind.
The Private Finance Initiative, launched by John Major, has been heavily criticised as it has resulted in huge, long-term costs for tax payers, whilst handing out enormous profits for some firms.
Over the next few decades, nearly £200 billion is scheduled to be paid out of public sector budgets in PFI deals, McDonnell pointed out.
He claimed that in the NHS alone, £831m in pre-tax profits have been made over the past six years.
Doubts over the costing of McDonnell’s plans surfaced quickly, as John Appleby, chief economist of the Nuffield Trust health think tank, suggested a bill of nearly £60bn.
“We could be looking at something like £56bn by 2048 in terms of payments. That’s a huge figure of course. That’s getting on for half of what we spend on the NHS today,” he told BBC Radio 4′s World at One programme.
“Of course, taking these back into public ownership, as it were, doesn’t come free. And the money would have to come from somewhere, either taxes or borrowing or reprioritising other public spending.”
In a bid to keep costs off the public balance sheet, Gordon Brown and John Prescott amended the Tory PFI schemes.
The policy remained unchanged, despite Labour’s conference voting early as 2002 to regret the use of private sector cash rather than public investment and borrowing.
McDonnell said that the Government could intervene immediately to ensure that companies in tax havens can’t own shares in PFI companies, and their profits aren’t hidden from HMRC.
But Carolyn Fairburn of the CBI was unimpressed by his speech. “Forced nationalisation of large parts of British industry will send investors running for the hills, and puts misplaced nostalgia ahead of progressive vision.
“Where Labour has engaged with business – from Brexit and skills to infrastructure and innovation – solutions have been found to deliver an economy that is both more prosperous and fairer.”