Concerns raised over South Tyneside's £102.4million PFI liabilities

Private finance initiatives (PFIs) involve public authorities partnering with the private sector to deliver projects and/or services.

Under an agreement, the private company handles the up-front costs with the project leased to the authority which pays the sum back in installments.

The scheme was first used by a Conservative Government in the 1990s and later championed under Tony Blair’s Labour government as a way to build schools, hospitals and roads.

Following the collapse of construction giant Carillion – which stalled several national projects – the use of PFIs were scrapped in the 2018 government budget.

According to a report presented to full council earlier this month (September 5), South Tyneside Council currently has liabilities of £102.4million linked to PFI contracts.

This covers South Shields School, Boldon School, Jarrow School, street lighting and a waste facility – with payments payable over the next 14-22 years and accounted for in council finance plans.

Call to ‘future proof’ liabilities

At the meeting, Green Party councillor, David Francis, asked how the council could “future proof” PFI liabilities.

He also questioned the “wisdom” behind some of PFIs mentioned in the report.

This includes the council being tied into contracts paying for South Shields School which is expected to close at the end of the next academic year (2020).

The decision was recently taken by council bosses due to falling pupil numbers and a failure to find a academy sponsor due to debts.

The Teesside energy from waste plant – where South Tyneside, Gateshead and Sunderland waste is processed under a PFI deal – also came under fire at the meeting.

Coun David Francis, who launched a climate emergency motion earlier this year, said incinerators have a real carbon cost – producing more carbon dioxide than fossil fuel-powered plants.

He added councils could be left paying funds to “compromise” climate change goals under PFI deals.

Coun Francis said: “More than 90% of the materials that typically end up in incineration plants and landfills could instead be recycled or composted.

“Money spent on incineration could be better spent on environmentally friendly practices like recycling and composting and PFIs like this can provide a financial disincentive to do the things we know will be required to meet our climate change obligations.”

He added:”As it relates to this report – waste incinerators are also potentially a financial burden.

“There are many cases around the world where local government have ended up in debt because of incinerators.

“On example in Harrisburg, Pennsylvania the costs associated with an incinerator in 2011 led to it becoming the largest US city to declare bankruptcy.”

‘They gave us schools but made lawyers rich’

Cabinet member for resources and innovation, Coun Ed Malcolm, said PFIs were the “only game in town” when introduced under the previous Labour government.

However, the Labour boss claimed the deals had helped the council save millions of pounds over the years.

“[PFIs] were introduced and they allowed us to completely renew our street light columns, produce as you have rightly said magnificent schools in Boldon, Jarrow and South Shields,” he told the meeting.

“Unfortunately things have went wrong there.

“PFIs also helped us in a new partnership with Sunderland and Gateshead to implement a sustainable waste management strategy.

“In the absence of PFIs, we would have had dilapidated secondary schools and a waste management policy which would have made us put more into landfill in the ground at a higher cost.

“The waste PFI scheme has actually saved us well over £2million a year compared to what we otherwise would have had to pay.”

Coun Malcolm accepted points about green policy and said several environmental schemes were in the pipeline.

He also told councillors that funds were not available to “rehash an incineration facility at this present time.”

Coun Malcolm added: “I for one, was not too happy with PFIs as there are many things wrong with them.

“What they did was give us new schools but they also made lawyers very very rich.”

The 102.4million PFI liabilities were listed in an update on ‘treasury management’ for full council.

According to the report, specific government funding is received “which offsets, in part, the cost of these contracts.”