A Labour government would bring contracts signed under the private finance initiative (PFI) back into the public sector, shadow chancellor John McDonnell has announced.

Mr McDonnell told Labour’s annual conference in Brighton that it was a “scandal” that PFI deals will result in nearly £200 billion being paid to private companies from the public sector during the next few decades.

Last year, headteachers urged the government to review schools’ PFI contracts, warning that some schools are spending more than 10 per cent of their budgets on the deals.

A Tes investigation found that schools are paying thousands of pounds more than they should for everyday items because they are locked into PFI contracts they have no control over.

Labour’s PFI pledge

Under Jeremy Corbyn’s leadership, Labour has already promised not to sign any new PFI deals.

But Mr McDonnell won loud applause as he told delegates: “We will go further. I can tell you today, it’s what you’ve been calling for. We’ll bring existing PFI contracts back in-house.”

The PFI scheme was introduced in 1992 by former Conservative prime minister John Major, but was stepped up significantly under Tony Blair’s administration, when it was used to fund the construction and operation of public sector infrastructure, including schools.

Under PFI, a private sector consortium funds, builds and maintains a facility on behalf of a public agency, then receives payments over the term of the contract, typically lasting 25-30 years.

The scheme has led to complaints that public bodies are forced to pay many times the original value of the property over the course of decades, while the contracts are frequently sold on by the original consortium.

Mr McDonnell told the Labour conference: “The scandal of the Private Finance Initiative, launched by John Major, has resulted in huge long-term costs for taxpayers, while handing out enormous profits for some companies.

“Profits which are coming out of the budgets of our public services.

“Over the next few decades, nearly £200 billion is scheduled to be paid out of public sector budgets in PFI deals.”

Aides to the shadow chancellor said a Labour government would review all existing PFI contracts and, where necessary, take them over and bring them back in-house.

Alternative models

Labour would aim to ensure that NHS trusts, local councils and others do not lose out, and that services and staff conditions are not harmed. 

The party will develop alternative public sector models for funding infrastructure, with the aim of saving tax-payers’ money and improving services and working conditions, said a spokesman.

Chief secretary to the treasury, Liz Truss, said that Mr McDonnell’s plans would add billions of pounds to the £253 billion of spending promises already racked up by Labour since the launch of its manifesto.

“These unaffordable Labour promises wouldn’t improve public services and the costs would just rack up and up,” said Ms Truss.

“Working people would pay higher taxes and we would spend more and more on debt repayments instead of public services. It all shows that Labour aren’t fit to govern.”

Labour Treasury spokesman Peter Dowd told BBC2‘s Daily Politics: “We believe that overall it will be self-financing, but we will set aside the resource that we believe is necessary. I don’t believe at this stage we can say how much it will cost upfront...I don’t believe it will run to billions and billions of pounds.”

But the director of the independent Institute for Fiscal Studies, Paul Johnson, told the programme that taking back contracts would cost “an awful lot upfront” unless Labour was planning to expropriate them.

Want to keep up with the latest education news and opinion? Follow Tes on Twitter and like Tes on Facebook