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PFI deals eat up to £1bn more

An additional £500 million to £1 billion that will be paid out to construction companies by the taxpayer in the next 30 years for PFI infrastructure contracts represents “good value for money”, according to the National Audit Office.

The extra payments came from the high financing costs applied during the credit crisis when the building deals were signed.

The spending watchdog insisted the state is getting its money’s worth because the PFI deals “reactivated” a section of the construction industry during the 2008-09 period, a time when banks had been refusing to lend any funds for large-scale projects.

However the Treasury can no longer act in the same manner because construction spending on the same scale now would not necessarily reap the same economic benefits, given that the Tory-Lib Dem Government says it wants to slash away at the level of national debt, according to the NAO.

A report by the watchdog pointed out that the Treasury’s creation of the Infrastructure Financing Unit in March 2009 helped to clinch a deal to build a large waste treatment and power generation plant. The unit helped increase overall confidence in the sector, the report said, and led to 35 other projects, such as the M25 widening and maintenance project, being signed up without any help from the taxpayer.

The report insisted that the massive expense of the prevailing market rates at the time is worth it now because it was enough to stimulate the economy when it needed it most, despite the public rather than the banks shouldering all the cost and risk.

The inflated costs equate to annual additional charges to the taxpayer of between 6% and 7% for the privatised deals, the report said. Apparently these extra costs will be “partly offset” with a bigger share of “refinancing gains” for the public sector.

Delaying or cancelling any of the larger PFI infrastructure projects would have risked wrecking any stimulus for the UK economy, the NAO said.