Costly PFI leads to service cuts

The Commons public accounts committee published a damning report into the controversial scheme which found that it was unsustainable.

It revealed that privateers had made annual returns as high as 60 per cent and there was evidence of "excess profits" being built into the initial pricing of contracts.

Around 700 projects have been delivered under PFI since its introduction 20 years ago and the Treasury is committed to spending a staggering £200 billion in contracts covering as much as 30 years.

The MPs warned the inflexible contracts were forcing NHS trusts and other public-sector bodies to make even deeper cuts to services during the current crisis.

The Queen Alexandra Hospital in Portsmouth had cut 700 jobs and closed 100 beds in an effort to manage annual PFI running costs of £40 million.

MPs urged the Treasury to use the ongoing review of PFI to produce a "qualitatively different policy" to curb excess profits.

Committee chairwoman Margaret Hodge said the current scheme was inflexible and unsustainable.

She said: "For too long, public-sector authorities have treated 30-year PFI contracts as the only game in town. This has to end.

"The Treasury review must find a private finance funding model that allows flexible delivery of public services and ends the era of investors receiving eye-wateringly high rewards while taking ever-decreasing risks."

But unions opposed to PFI demanded an end to the scheme altogether and for contracts to return to public hands.

A spokeswoman for public-sector union Unison said: "Report after report has shown that PFI doesn't deliver either on quality or price.

"And nowhere has the impact of these high-price PFI deals been more obvious and damaging than the NHS, where the government's demand for a £20bn so-called efficiency savings coupled with those deals are causing patients to suffer.

"We would like to see the whole system done away with and for all contracts to be brought back in-house."