PFI costs spiral after funds agreed

The report, which criticises the Communities and Local Government department for failing to assess projects for value for money, found 21 out of 25 schemes required significant extra government funding prior to contract signature.

A total of 12 schemes saw cost increases above estimates in the initial business cases of more than 100 per cent.

Two schemes, the Street Properties project to refurbish 4,000 properties in Islington, and Manchester’s Miles Platting scheme to refurbish 1,500 homes, both cost more than £160 million, compared to less than £60 million outlined in their business cases.

The NAO report says the CLG failed to evaluate housing investment models or collect data to demonstrate that PFI was better value for money than other options for improving stock, including stock transfer or creating an arm’s-length management organisation.

The report also says local authorities and contractors had expressed concern about whether the CLG and the Homes and Communities Agency had the expertise among its staff to work on PFI, although it acknowledges steps have now been taken to address the issue.

The CLG told the NAO the main reason for underestimating costs in early rounds was that housing was a new PFI sector and therefore ‘experience did not exist’, states the report.

Amyas Morse, head of the NAO, said the CLG should now carry out an evaluation of the value for money of the programme.

‘The department should assess, as a matter of priority, whether its current and planned PFI projects are delivering value for money,’ he said.

‘It should at the same time, assess all its past projects.

‘This assessment should be based on hard numbers as well as qualitative factors.’

Housing minister Grant Shapps said: ‘This report is further independent evidence of the failure of the previous government to demonstrate value for money for the taxpayer.

‘We can and must do better. Housing PFI plays a useful role in improving existing homes and providing new homes in areas of housing need, but we also have a responsibility to ensure every pound we spend is spent wisely because of the huge deficit in public finances we have inherited.’

Mr Shapps said the CLG will look in the autumn spending review at whether housing PFI offers value for money.

The government earlier this month announced a withdrawal of £160 million of unspent PFI credits as part of plans to reduce the budget deficit.

A CLG spokesperson said the decision will not affect projects already underway.

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