The government will no longer use private financial initiatives (PFI) to fund future school-building projects – but is facing criticism for failing to help those schools still tied into “toxic” contracts.
Chancellor Philip Hammond announced on Monday the government won’t sign off any new PFI deals, claiming the model was “inflexible and overly complex”.
It follows mounting criticism over use of the deals – whereby private firms build, operate and run buildings that are leased back to the taxpayer under contracts of around 25 years – by successive governments.
PFI companies are the payday lenders of the public sector and for too long governments of all colours have borrowed from these high-cost creditors
Several Schools Week investigations have revealed how the hefty contracts are thwarting failing schools from being taken over by new sponsors.
While Hammond’s pledge only rules out new PFI projects, the government did announce a new “centre of best practice” will be set up to improve the management of existing PFI contracts.
However this will sit in the Department of Health and Social Care, so it is unclear whether schools will be able to access its help. The Treasury did not respond to repeated requests to clarify the matter.
Labour MP Stella Creasy, a regular campaigner against PFI, called for further action.
“The chancellor claims he wants to learn the lessons of PFI for the future, whilst our schools and hospitals are struggling and cutting services now.
“PFI companies are the payday lenders of the public sector and for too long governments of all colours have borrowed from these high-cost creditors. Not only should we stop using these kinds of PFI deals, we should also tackle the damage done already.”
Research by the Centre for Health and the Public Interest in February found schools were on track to pay £4.8 billion to PFI operators by 2020, generating an estimated £270 million of profits.
But billions are still owed to the firms, with schools in five regions tied into the contracts until 2039.
A Schools Week investigation in 2016 revealed that every state school in England would have to pay more than £1 million to clear the debt still owed to PFI companies. A subsequent report by the National Audit Office in January found there was little evidence that PFI contracts were good value for money.
According to the latest academies’ accounting returns, from 2016-17, a total of 34 academies paid more than £1 million as part of their PFI contract repayments.
Highfields School in Wolverhampton paid £2.1 million in that year – the highest sum in the country.
Government records show the school’s total income for the same year was just under £10 million, meaning the PFI repayment made up more than a fifth of its income.
The school did not respond to requests for comment. However its annual accounts for last year list the PFI contribution as a “key risk”.
But the report stated governors believe by becoming an academy they have secured a “sustainable” PFI contribution which the school can “plan and move forward”.
The repayment rose to £2.1 million last year from £1.5 million in 2016.
Schools Week revealed earlier this year how failing schools with hefty PFI bills are still in takeover limbo.
Hanson School in Bradford has been waiting more than seven years for a sponsor to formally take it over.
The school is lumbered with an annual £1 million PFI repayment bill.
One of England’s largest academy trusts, United Learning, has even refused to take on any more PFI schools, amid concerns about control over buildings.
Most PFI projects are owned by a small group of very wealthy companies with very expensive lawyers
Councils are also struggling with rising repayments. Schools Week reported in 2016 how some local authorities were planning to cut swimming lessons, sports co-ordinators and special-educational-needs provision to plug PFI-budget black holes.
Figures show councils pay on average £1 billion to PFI firms in interest alone each year. Creasy wants the government to “urgently” consolidate the loans, which she says could save around £500 million per year.
“Most PFI projects are owned by a small group of very wealthy companies with very expensive lawyers, making it almost impossible for individual schools or hospitals to stand up to them… If these companies won’t play ball, then it’s time to bring in a punitive windfall tax on the massive corporation-tax profits they’ve made to get cash back for our public services.”