Thursday, 27 December 2012

PFI.( Private finance Initiative) One huge reason never to vote Labour again.

Making overseas payments?
The ski resort of Chamonix, dramatically overlooked by Mont Blanc, is not quite the most expensive in the Alps – but it keeps its end up. The flashiest restaurant, La Cabane, charges £19 for a starter and £33 for a main course. The best room in the top hotel, the Relais & Chateaux Albert the First, costs £420 a night.
All this week, The Daily Telegraph has been exposing a different kind of spending – the amazing sums taken from the taxpayer under the Private Finance Initiative. And all this week, eating in that restaurant and living in that hotel room, has been one of the principal beneficiaries.
His name is David Metter. He is 58 years old. You have almost certainly never heard of him – he keeps an extremely low profile – but he has made his fortune, conservatively estimated at £60 million, out of you.
Mr Metter is the king of the PFIs, the biggest single player in the market. He personally controls almost three-quarters of a company called Innisfree. He employs just 14 people – but he owns or co-owns 28 NHS hospitals, 269 schools, the Whitehall HQ of the Ministry of Defence, a Scottish motorway and a Welsh jail.
Under the PFI, Innisfree and other private investors build and operate such facilities, then effectively rent them to the state – at a substantial premium. The Daily Telegraph disclosed this week that for an NHS hospital in Bromley which cost £118 million to build, taxpayers will end up paying 10 times as much – £1.2 billion – to the PFI owners.
Innisfree is one of those owners – and at Bromley alone, according to the National Audit Office, it is making a return from taxpayers of 71 per cent. The Daily Telegraph did not set out to target Innisfree. But in the most controversial PFI schemes found by this newspaper, it was striking how often the company turned up.
It owns four-fifths of the PFI school in Clacton which has now closed – but for which taxpayers must still pay it £1.4 million a year, Innisfree’s share of the deal, until 2035. It owns the Birmingham school where parents couldn’t start an after-hours club to keep their kids off the streets – because Innisfree charged £70 per hour for a caretaker. It had a 50 per cent stake in the calamitous Defence Animal Centre deal, where each dog kennel cost more per night than a five-star hotel room (though admittedly not as much as Mr Metter’s suite in Chamonix.)
Innisfree has the Queen Elizabeth Hospital in Woolwich, where it effectively locked taxpayers into a 60-year contract. And it has a quarter of the Norwich and Norfolk Hospital – where Innisfree and its partners refinanced their debt, lengthening the NHS’s repayment term from 34 to 39 years, but raising their own rate of return from 16 to 60 per cent. Only a small portion of the refinancing gain was shared with the taxpayer.
Of course, the prices we pay to PFI companies include interest, inflation, and often support services, such as maintenance – but they also include, numerous independent academics have warned, “significant excess returns” for the companies and “far above market” financing costs for the taxpayer. Even repayments on a normal mortgage, of the kind you or I could get, work out at perhaps just three times a property’s capital value.
Innisfree insists that it risks its own money, or that of its investors, in deals which can go wrong. But actually, it invests only tiny amounts. The hospitals it owns or co-owns have a total capital value of £4.8 billion; Innisfree’s share of them is worth about £2.2 billion. By its own account, the actual amount of money it has put into those hospitals is £376 million, or an average of £13 million per hospital. The rest is borrowed.
And from the company’s latest accounts it does not, to be blunt, look too great a risk. Last year, Innisfree made 53 per cent profit on its turnover. A highly successful FTSE company, such as Tesco, reckons to make 6 per cent.
Mr Metter collected pay and dividends of £8.6 million last year, and can afford an enviable lifestyle. He has a £5 million villa in London’s chi-chi Little Venice. Skiing in Chamonix’s expensive mountains is an annual treat for the “PPP Forum”, his lobbying group – its brochure jokes about “high-level networking”. Ninety people, the cream of the PFI business, went last year, most staying at the Albert the First or the second-best hotel in town.
All credit, some may say, to Mr Metter for spotting a wholly legal and legitimate business opportunity, one which has lifted him from middle-ranking property manager to multi-millionaire. But public spending is falling and the storm clouds are gathering – interestingly, from the Right.
Edward Leigh, the Thatcherite Tory who until last year chaired the Commons’ public accounts committee, called the Norwich hospital deal “the unacceptable face of capitalism”. Another Tory MP, Jesse Norman, now says Innisfree has “made more money for less work than any other group of people I can think of”.
Mr Norman leads a cross-party campaign asking PFI contractors to give back some of their profits, or bend their inflexible contracts to the austerity era. Mr Metter did not respond to our questions asking whether he would consider this. Nor did he answer whether he pays UK tax.
Mr Metter may, I suppose, reckon that he has legally binding agreements and no great reason to worry about being unpopular. But then, so did RBS’s Sir Fred Goodwin.

Share

99


Facebook

56


Twitter

43

Email



LinkedIn

0




Share

99


Facebook

56


Twitter

43


LinkedIn

0


Showing 1-25 of 154 comments


  • This situation is the fault of the last government not Mr Matter - and lets face it if he can rip the taxpayer off like he has, he is unlikely to worry about the morality of paying his tax locally.

  • What a racket. Take a close look at the odorous delivery, exclusivity (for the protection of shareholders’ profit), and financial terms of the RAF’s tanker / transport (FSTA) PFI contract. How on earth could anyone in MoD even remotely consider this represents good value for money. Annual base-line costs, (which will be routinely and substantially exceeded), are around £485m per year and will continue for 27 years even if during that period Britain no longer requires that capability!
    Even though the NAO auditors were poorly briefed, their report reveals that the ‘service’ will be delivered at in excess of ten times the aircraft’s realistic hourly operating cost and that the service falls short of the originally planned capabilities, (believe me, I know).
    Outrageous, obscene, unadulterated greed, exploitation of taxpayers.
    It is still cheaper to cancel the deal, buy the aircraft outright at the real market price, with legitimate third party asset funding if required and, with good management, deliver far better for much, much less!
    Genuine commercial opportunities are fair game but there must come a point, particularly in regard to public services, where we exercise moral judgement; I care for my Country and this is certainly not in our collective interests. It’s time we had the ability to hold people to account for such incompetence.
    Let’s be clear; the fault is entirely attributable to the Blair/Brown government.

  • We need to put the crime of Economic Treason on the statute book. A compulsory minimum jail term of 24 years with no hope of early release. Bankers who ruin their banks through greed, hedgies that destroy British firms & thousands of jobs, PFI bosses who fleece taxpayers, British bankers betting against the pound, all qualify for economic treason by my reckoning.

  • I don't think you have really got to the bottom of this. Politicians wanted things built. They got what they wanted. The culprits, if that is what you are looking for, is not the government of the day, the contractors or the civil servants. It is the 'experts'. Every single PFI project has a business case that demonstrated it is value for money. That business case would be prepared by the experts and accepted by their clients. So your paper is now quite rightly saying that all of those experts produced material that was wrong.
    Now you start to get warm. Who advised on the processes needed to deliver PFI? Who was seconded into the Treasury to head up the delivery PFI? Who negotiated these flawed commercial deals? Who made millions and millions of pounds from the advisory work?
    There are two sets of culprits: the financial and legal advisers.
    I was involved in many many PFIs. One stood out. A school that cost £12M to build. The Council's external legal costs to negotiate the PFI contract, based on a standardised contract, was £1M.
    PFI for the advisers has been the golden goose. The government asked the advisers how to do PFI. Their advice established an industry.
    When you think about asking the private sector for 'money back', don't forget those now silent advisers who said this was all great value for money.
    But, it goes deeper. Inside the process were a number of bodies. The main one of which was Partnerships UK. It is they who established and promoted PFI. They developed the guidance and heavily promoted it to ensure it was the only game in town. And where did Partnerships UK recruit from? The advisers.
    You might say 'there is no point crying over spilt milk!"
    But, I leave you with this. And to be honest this is where your journalism has failed to draw informed conclusions. Where are the main proponents of PFI now? These people who have cost the country billions through their poor advice. Well the truth is they remain at the heart of government. They continue to advise and their advice is followed.
    Who ran Partnerships UK? What are they doing now? Who headed up PFI in the NHS? What are they doing now? Who were the leading advisers in the PFI market? How much consultancy do they currently deliver to the public sector?
    Always remember this, every PFI investment was supported by very expensive expert opinion that value for money was being achieved.

  • Perhaps the DT could dig deeper and produce some names. It sounds like the Poulson corruption case of some years' ago!

  • Excellent post. All PFIs had to be supported by a business model which had to be approved. These highly-paid charlatans should be sued for professional negligence.

  • Innisfree is one of those owners – and at Bromley alone, ..according to the National Audit Office, it is making a return from taxpayers of 71 per cent. ...
    Obscene!!
    Simple solution Mr Cameron. Nationalise them.

  • As others have suggested those PFI contracts which produce an excessive profit for the contractor should be renegotiated. Andrew reports that 'a crossparty campaign is asking PFI contractors to give back some of their profits'. But Parliament is supreme. It can make or unake any law. It is not bound by its predecessors. We have a financial crisis in which ordinary are having to sacrifice income and prospects. The Govt should therefore ask Parliament to pass legislation (a) requiring all PFI contracts to scrutinised and if necessary renegotiaed and (b) providing that, if negotiations are unsuccessful, the state will acquire the assets at a reasonable price, payable in instalments over ten years. In other words, don't ask 'em, tell 'em.

  • I can remember when John Major introduced PFI to this country on a limited scale, and John Prescott had a right go at the idea on breakfast with Frost at the time.
    Pity he didn't practice what he preached

  • What I really don't understand is how these PFI projects got signed off in the first place. Who, in for instance, the Department of Health thought that these were good deals? I know for a fact that my local hospital paid a management consultant £800,000 for one year's work, working one day a week. It is difficult to imagine the person in the D of H saying "Oh! That seems to be a good price. We'll go with that". One of the medical consultants in the hospital was sacked for telling his colleagues about this.


  • It gets worse mate.
    The last government privatised the NHS supply chain by giving the contract to DHL.
    Yes - DHL the German owned haulage firm!!
    UK suppliers had to submit commercially sensitive information on products and prices before being “allowed” to supply the Health service via this new privatised DHL-NHS Supply chain.
    So, now the wonderful German owned DHL thinks it a great idea to cut out the UK suppliers altogether and source generic own branded product from the Tiger economy. (Using all the commercial information demanded in the first place).
    Naturally, the healthcare industry is concerned. And so should we, because Healthcare and pharmaceuticals are one of the key industries that fund our economy.
    If the public sector budget for our healthcare is sent directly overseas to foreign companies then many of the UK ones will go to the wall.
    Another example of incompetent and unaccountable public sector management.

  • Tony to Gordon: "We must build lots of lovely new hospitals and schools so that we can improve the health of the nation and improve education, education, education. There's loads of money cos those nasty tories stupidly left some behind".
    Gordon to Tony: No, no Tony, you don't understand. The reason to build hospitals and schools is so that we can introduce targets for spreading MRSA in the former and to produce ill educated Labour voting clones in the latter. That way we can kill off those who have lost their faith in socialism and make lots of shiny new socialists. Anyway there is no money left cos I've spent it all on other social engineering schemes."
    Tony to Gordon: "But Gordon you can't have spent ALL the money. Just look at how much we have been fleecing from the people with our stealth taxes".
    Gordon to Tony: "I am sorry to mention it Tony but you keep starting wars and they do cost quite a bit."
    Tony to Gordon: "But I like starting wars it makes me look good and it gives me something to play with while I leave my marxist friends looking after all the boring bits like the police and justice and stuff like that".
    Gordon to Tony: "Well ok but stick to Iraq while you think up some more lies before you go poking around in Afghanistan. Anyway I think I've found a way to finance the hospitals and schools. I won't bore you with the finer points as I know that just makes you switch off. Suffice to say it is a really bad deal for the taxpayer and it will cost about 10X what it should".
    Tony to Gordon: " Won't that make us lose voters?"
    Gordon to Tony: "Don't be silly Tony. We will keep the figures off balance sheet and by the time anyone finds out you and I will be long gone. You can make millions out of speeches full of verb-less waffle and I can write a book explaining how I saved the world"
    Tony to Gordon: " Oooooh Gordon you are wonderful".

  • As a landlord I am prevented by law from charging excessive fees for repairs and services to my property. Indeed my tenants have the right to seek alternative quotes and also to refuse payment for any work carried out and invoiced prior to consultation and agreement.
    The PFI programme has ensured many public construction projects have been carried swiftly and to a high standard. However, we should challenge any excessive maintenance costs being levied in the courts if necessary.

  • The courts will only look at the Contracts as signed!

  • Just because a contract is signed does not mean all aspects and clauses are legally bound and sound.
    The unfair terms of contract act 1977 and the Landlord and Tenant Act 1985 may well provide plenty of material to bring about change via judicial review.
    There is legislation preventing landlords from exploiting and inflating service and maintenance repair costs.
    This should be pursued. The fact it has not yet is probably more to do with public sector incompetence and apathy than a lack of legitimacy.

  • Unfair Contract Terms 1977 only applies to consumer contracts, not PFIs.
    Forget it.

  • Then let Parliament extend the Unfair Contract Act 1977 to cover PFI.

  • You cannot retroactively impose a new law on existing legally-binding contracts that were freely negotiated by equal parties. That's what African despots and dictatorships do. If the UK went down that route, no business contracts would ever be honoured again and commercial life would cease to function. It's a non-starter.

  • Excellent article. The greed and profiteering from PFI needs exposed.
    Those of you down in England may be unaware, as it is rarely reported (or mentioned by Labour in Westminster), but up in the Scottish parliament, Labour are regularly berating the SNP Scottish Government for NOT starting even more of these PFI schemes.
    On several occasions the Labour leader in Scotland Iain Gray, has lambasted the SNP because they (the SNP) refuse to use PFI. Labour can still not see what the problem is with PFI, and the massive debt burden it has created.
    Sadly, even after losing control of the Scottish Parliament, AND Westminster, it seems Labour really have learnt nothing.
    see ;
    http://www.newsnetscotland.com...
    http://www.snp.org/node/16382
    and http://www.snp.org/node/17013

  • If we want to avoid such excessive costs again we need to take an objective view as to the causes of such problems and avoid subjectivity, emotion, and ideology - any assessment of past and existing contracts has to be largely based on the contracts "as signed" and the records of the contract's administration as available.
    If we haven't the finance for necessary, even critically needed, infrastructure and public services needs, can we afford to ignore PFI as a Contract Strategy simply because of past Labour Government Ministers' , their teams', and the senior local Client's Managers' inexperience in setting up and administering such schemes and obtaining value for money. If PFI is not wanted, what alternatives are available?
    Please also understand, there is no greed and profiteering involved in obtaining entitlements due under a signed contract! To go down that subjective assessment route would set precedents and create general commercial chaos!

  • Excellent Andrew, this is what journalism should be about.
    Parliament should re-write these contracts. I would be quite surprised if the books of these PFI operators are clean.

  • You cannot "re-write" a legally binding contract except by the agreement of both parties!

blog comments powered by Disqus
Like Telegraph.co.uk on Facebook
Post a Comment