Who's Getting Rich on your Money? Panorama

Tonight, Panorama investigates the multi-billion pound deals hidden

from the taxpayer, threatening the future of hospitals. It has been a

rip off, we've paid far more than we needed to. Deals that aren't

always what they seem. Was Liverpool a fix? Yes, I believe so

and I think ministers should have asked some tough questions about

this project. Deals that sometimes test the patience of the public.

What do you make of that? It's barking. And deals that have

allowed a small group of companies and private financiers to make a

fortune from taxpayers' money. Daily Telegraph of 28th January

reported you as getting �8.6 million last year, is that correct?

That's correct. Deals that will affect our schools, hospitals and

Across the country, a new power is making its presence felt. Unelected

and unaccountable. It's 10pm in Shipley, Yorkshire. The new Titus

Salt school is lit up like a Christmas tree. All night long, the

lights blaze away at this school, holiday and term time. A neighbour

opposite says that she has to wear an eye mask to get to sleep. School

budgets are falling, yet this school's electricity bill is going

up in smoke. Now the green thing to do is for the last person who

leaves to turn out the lights, but you can't at this school. It was

I wanted a simple answer to this simple question. I asked the school,

then the local authority, then the firm that maintains the school,

even the PR firm they employed to handle my enquiry. No-one was

prepared to shed light on this Welcome to the surreal world of a

government scheme called the The sway of PFI is growing, but

some of its customers are far from This junior football club in

Worksop used to train at the local school. In 2007, that school got

taken over by a PFI company. Prior to PFI, we were spending less than

�2,000 a year on pitches and facilities. You mean booking

pitches? Yes, indeed. Last season, it was just short of �4,000. This

season, it will be in the order of �4,500-5,000. So it's more than

doubled since PFI? Yes. We've seen the cost to these players go up

from �60 a year to �90 to cover that. The PFI school owners,

Balfour Beatty, say use of their pitches had increased sevenfold.

Not so, say this soccer club. And cost, they say, is not the only

problem. All of our activities are either in the evenings or at the

weekends. The companies that do the pitch bookings work Monday to

Friday, 9-5. So they don't have mobiles or anything of that sort?

Well, rather amusingly, we were refused the mobile numbers of the

caretakers under the Data Protection Act. Despite De Balfour

Beatty's Health and Safety situation says we should contact

them. What do you make of that? It's barking. The local MP agrees.

In the past, you could go to the head teacher. The head teacher has

no influence over the building and use of the facilities. The only

people you can go to are the private company, the PFI contractor,

who've got no interest whatsoever in discussing with the community,

including with local MPs. They're Quite a lot of money, in fact. For

two decades, Private Finance Initiative projects have been

quietly clocking up. So far, to a They may not be household names,

but they do form the backbone of our civic life. Nearly 1,000

hospitals and schools now owned privately. And with more PFI

In Liverpool, the local NHS wants a piece of this PFI action. They're

desperate for a new hospital. The one they've got has been voted the

ugliest building in the city. The The ceiling panels are very

interesting in this hospital because all you've got to do,

wherever you are, is look above you and you'll see fingerprints on all

of the panels and that is because, for instance here, all of the

facilities for our hospital, the water, the electricity, is all in

the panels above where you are walking. And things keep going

wrong? Things go wrong constantly. Our facilities department, in one

month, recorded 1,300 reactive maintenance calls and that's leaks,

electrical breakdowns, central heating breakdowns. A new hospital

is going to cost over �1 billion, but even in these cash strapped

times, Dr Williams says it's urgently needed. We lost several

theatres over Christmas, for three to four days, because of leaks. We

couldn't use a number of our theatres. Because you had to shut

off the pipes to fix it? Absolutely. The ceiling was covered in plastic,

Like almost every hospital built in the last decade, Liverpool has been

encouraged to turn to Private Finance Initiative. Here's how the

Private companies borrow the money to build the hospital. They usually

also clean and maintain it once it's opened. The NHS then pays them

a 30-year mortgage to use it. Ministers like PFI because it works

like a credit card - THEY buy now, we all pay later. It's very

seductive politically. If you were the Prime Minister, I can get you

to announce more new hospitals with this machine than you dreamed

possible, and you like that. And I do like it. I don't like it if it

shows on my bank balance. It's your successor's bank balance so you

needn't worry. That DOES sound good. And some PFI projects HAVE saved

taxpayers money. The M6 toll road was much needed. Private money

built it. And it earns its keep from motorists who choose to use it.

Some very good infrastructure got built. There's no doubt about it.

Some very good infrastructure got built. It was just built at an

The real story is the enormous additional cost that we as

taxpayers have been paying. Tens of billions of pounds for public

infrastructure that was built over the last 15 years, and that, I'm

The PFI credit card comes with some very tough terms and conditions. In

fact, it's a very inflexible friend. Take this fire control centre and

eight others like it. All but one have been empty since they were

built because the fire brigade don't want to use them after all.

If these white elephants were owned by the Government, they could least

sell them on, pull the building down, at least do something useful

with the land. But with PFI, you're stuck. A contract is a contract,

and the owners get paid for a generation whether the buildings

That contract means the owners collect nearly �40,000 a day in

rent and maintenance on this herd of white elephants. At least half a

billion will be wasted by the end of the contract. Not exactly value

for money. It's as though you went out and bought a plasma screen on a

credit card. The difference, unfortunately, with PFI is that's a

25-year plasma screen repayment. And the amounts involved are tens

or hundreds of billions. That will be hanging over my children,

undoubtedly. And the children of all of us. But for some, PFI has

been the goose that laid the golden Next stop on my journey around PFI

Britain, an MP who says his hospital's had to learn some hard

lessons about PFI. Too often there has been this sort of rather hazy,

slightly dopey assumption that all will work out for the best and the

best of all possible worlds, and that the private sector isn't out

there to make a buck as quickly as it can. Opened in 2001, the Norfolk

and Norwich was one of the country's first PFI hospitals.

We've learned the hospital wanted the contract rewritten to let them

share in any windfall the new owners might make. The Department

of Health stopped this. We understand this was Treasury policy.

I think at the time they were very keen to attract the private sector

in. It was the first sizeable deal to come along and they bent over

backwards to attract the private sector. Sure enough, within two

years the owners, Octagon Healthcare, got a cheaper mortgage,

and thanks to the taxpayer, they could write themselves a cheque for

�116 million on a hospital that After the deal had been done, I

wrote to all the shareholders of Octagon, including Serco, who were

a small shareholder at the time, and said, look, you've made a big

gain, how about giving us a little bit of it to one of our charitable

trusts. The only shareholder who responded was Serco, who still do

the hospital maintenance and catering. Serco have become part of

the hospital. I think for Octagon, perhaps inevitably, we are a

contract first and foremost. We're an income stream. After Octagon's

windfall arrived, they did hand over �30 million to the hospital,

but they still walked away with �82 million thanks to the taxpayer -

money that could have been used to treat patients. -- they did hand

over �34 million. But you must have been kicking yourselves. Well, I

hated seeing this money going over to these institutional investors

when we could have used that money ourselves. Yeah, I hated it at the

time. Hated them lining their pockets. They made a very good

investment, didn't they? It was fleecing you, wasn't it? I don't

think they were, I think fleecing is too pejorative. They'd made a

So who are the investors reaping these rewards? They rarely speak

publicly, but this summer MPs called the bosses of two of the

major investment funds to account. One of them manages investments in

19 hospitals including Norfolk and Norwich, run by Octagon, over 260

schools and PFI defence contracts worth �3 billion. His name is David

Metter. The Daily Telegraph of 28th January reported you as getting pay

and benefits of �8.6 million - is that correct? That's correct.

That's correct. In an environment when the whole country is going

through a tough time, here are you, paid more than the chief executive

of the Royal Bank of Scotland. I respond to that? I haven't

finished my question yet. David Metter is the frontman for the PFI

industry. He, like other PFI businessmen we approached, didn't

want to be interviewed by Panorama. Go to all these hospitals, schools

and railways lines, and ask them the question. Do you think these

work? Mostly, our public sector customers are very happy. So when

David Metter said, and I quote, "I think UK PLC is getting an

excellent deal," do you agree with that? No. I certainly don't agree

with that. The best financial deal, without doubt, are the PFI

investors. What the public have got is hospitals and schools built that

would otherwise not have been built. Not only built, insists Mr Metter,

but on time and to budget. The argument is that if you allow the

public sector to take control of these huge infrastructure projects,

you end up paying a lot more. There's some truth in that, isn't

there? Cheerleaders and critics of PFI can both cite the anecdotes

they like. But what you have to do is you have to look across the

whole piece. And across the piece, its performance is not much better.

On to Bromley, South London. This Government says that some PFI deals

are pushing NHS trusts to the brink of financial collapse. PFI's

chickens are coming home to roost. This is the princess Royal Hospital

in South London. It is another hospital project that has helped

fill out the size of Mr Metter's wallets.

Mr Metter and his fellow investors were able to take out a cash

windfall, this time of �30 million. Today they are earning an average

return on their investment of 70% every year.

It is hugely excessive and particularly relative to the risks

that are being borne this is an extremely high return. Mr Metter

stresses the princess Royal is not typical of most PFI deals, but that

doesn't help the hospital. It is one of the most expensive PFIs in

Britain, repayments eat up a fifth of its income. The trust has debts

of nearly �140 million and rising. A repayment on a PFI investment is

a first call on your resources so if you are running a trust or a

hospital trust or a school you have to pay that before you pay any

doctor, nurse, teacher or anything. The Government department that is

supposed to safeguard the interests of taxpayers is Her Majestys

Treasury, the PFI buck stops here. For years, the Treasury has claimed

that despite the higher repayment costs of PFI, it is still value for

money, especially because the private sector, not the public

sector, has taken over the risk and the cost of the unknown. Really?

For a hospital, one of the biggest risks over the lifetime of their

PFI contract is inflation, now at 5%. PFI companies have protected

themselves against inflation, but a Panorama survey shows that

hospitals are bearing the brunt of T we contacted nearly all PFI

hospitals in England. 89% confirmed they are locked into loan

repayments which rise fully with inflation. All this while the NHS

is having to make unprecedented savings.

It means you get fewer operations, fewer medicines, less care for

every �1 you spend. I think that there will be cuts in

health services to patients to pay for the costs of the PFI deal and

that's a real, real concern. And it was a concern that was

foreseen here at the Treasury. Hospitals were warned against

locking themselves into contracts that were fully linked to inflation.

So why didn't the Treasury stop them?

Because said the Treasury in a statement to Panorama their role

was to provide advice and guidance and the guidance was not manttry.

-- mandatory. What do you think of the treasury's

oversight role, do you think they have been vigilant enough? No, I

don't think they have been vigilant. I think they have been very

partisan in the way they have overseen the letting of PFI

contracts. My next destination, Scotland.

Despite the Treasury's claim that PFI is value for money, the full

financial details are secret. But in Edinburgh, a husband and wife

team has unearthed details that the taxpayer was never meant to see. Dr

Jim Cuthbert is the former chief statistician at Scottish Office and

his wife, Margaret is an economist. They have acquired the secret data

for six projects that exposed the true cost of PFI. We found in a

number of cases that they could actually have put up two hospitals

instead of the one that they were putting up.

It would be wrong to give the impression this is rocket science

and complex. I think at the level of the ordinary person in the

street, they fully understand what happens if on a credit card you

don't pay off your credit card and the debt can escalate.

Cuthberts found the hospitals were locked into schemes that generated

big profits for the PFIs. They don't show up on Britain's

bank balance because they are charged to the PFI credit card. Is

PFI dodgy accounting? Well, I do actually subscribe to the view that

this was dodgy accounting. It is dodgy because it should have been

transparent. This was a type of accountancy that was going to lead

to grief in the economy. The Treasury insist that more

recent PFI deals have offered taxpayers much better value for

money. But have they really? Remember the Royal Liverpool

Hospital where the operating theatres are flooding and the

buildings falling down? Like almost all other big hospital projects,

Liverpool won't go ahead if the local NHS can't use the PFI credit

card. There is no realistic public sector option for almost all of

those schemes. There isn't the public capital available in the

Department of Health to fund them. So from the point of view of the

individual trust, they are looking at PFI as the only game in town.

The Department of Health insists that they have done the sums for

Liverpool and they show that PFI is the best value for money. However,

we have obtained confidential Government documents that suggest

the calculations were manipulated in PFI's favour.

The documents reveal that in December 2009, PFI was found to be

significantly more expensive and and -- than if the Government built

the hospital and that wean the answer that either the trust or the

Department of Health wanted. Knowing how these things are done,

they must have been desperate. I mean they must have used every

telephone directory, spare dictionary to prop that PFI scheme

Our confidential documents show that the sums were done again.

Whereas four months earlier, the the sums showed that PFI was more

expensive, now they showed PFI was cheaper. The dirty secret is that

everybody who approaches this exam and fills in their exam paper came

to the exam knowing or believing hat hat answer was already.

We looked at how the sums were redone. Even though the contract

had not been tendered the trust assumed the winner would settle for

lower profits than almost every other PFI deal and even then PF I

only scraped home by a whisker, cheaper by 0.03%.

It is a spuriously precise rul. The truth is the -- result. The truth

is the amount of certainty that relates to the assumptions being

made here is is so vast that such a small difference between the cost

of public procurement and the cost of P PFI are meaningless. Decision

whether to go with PFI really matters. Some believe if the

Government built the hospital itself it might save �0.5 billion

which could buy Liverpool �15 million of extra healthcare every

year for the next 34 years. �15 million would buy you nearly

200 full fully staffed beds or a lot of nurse. Clearly a lot of

healthcare and it will affect the health of Liverpool.

Was Liverpool a fix? Yes. I believe so. I think ministers should have

asked some tough questions about this project.

Tough questions particularly because as the the confidential

documents reveal, a warning by the Department of Health that the risk

of the new hospital not being able to afford its PFI payments was

significant. And yet the Health Secretary Andrew Lansley has given

the thumbs-up to Liverpool's PFI. Which is strange because Andrew

Lansley has been complaining loudly about how PFI has brought parts of

the NHS to the brink of financial collapse. We wanted to ask him

about the new hospital in Liverpool, but like everybody else in this

programme with questions to answer, he didn't want to be interviewed.

In statements to Panorama, the Department of Health and NHS trust

in Liverpool denied any manipulation of the calculations.

It is not even clear the hospital can afford it.

We showed our evidence to Hodge, the MP who -- Margaret Hodge who

oversees the committee. I think Liverpool is a fix on the

basis of the documents you showed me and that is bad decision making

and that is not serving the interests of the taxpayer properly.

If they want to build a hospital in Liverpool and this is the only way

they can build it, fine, but be transparent and open about the real

costs to the taxpayer, to the Health Service, not just today, but

over the 30 year life of that PFI deal.

Perhaps the most puzzling question in all this is why did this

country's economic elite, the Treasury, allow the private sector

such latitude when it came to taxpayers money? Many of the senior

people, the Treasury appointed to expand PFI and check any excess

themselves were financial consultants and bankers whose firms

have made millions from PFI, back and forth they have gone, between

the Treasury and the City. Geoffrey Spence used to work for the bank

HSBC, now he is on his third stint at the Treasury. Richard Abadie

came on on secondment from PWC and has returned there. Charles Lloyd

was loaned out by PWC, he too has returned there.

We have had more than one person in front of this this committee whose

job title was PFI head of policy who was a secondee from one of the

major accounting firms. You have accountants, bankers, consultants

and lawyers who have an interest in keeping the thing going.

We wanted to talk to some of these former officials who have moved

backwards and forwards between the Treasury and the City, not aus of

any suggestion -- because of any suggestion of improprietary because

there is no none. We wanted to hear their response to the criticism

from all parties against PFI, but like everybody eltion, they didn't

-- else, they didn't want to be interviewed nor nor did chancellor,

George Osborne which is surprising? Why? Because in opposition the

Chancellor and his colleagues were scathing about PFI.

It is an accounting dodge. It is a way in which Government can pretend

they are not borrowing money when they are.

The Government have signed many PFI schemes with more on the cards.

In Opposition all parties criticise PFI. Once in Government, parties

tend to realise there isn't a Plan Treasury announced a review of PFI,

they told Panorama this would see the end of PFI as we know it for

many this can't come too soon. I would disband the NHS PFI unit. I

would drop a hydrogen bomb on it, yes.

Drop a hydrogen bomb on it? Yes, wi. In his mini Budget tomorrow, the

chore is expected to seek another �20 billion from the private sector

for new projects. Criticising the PFI credit card in opposition is

one thing, in office resisting the temptation to keep using it maybe

quite another. Next week, secret shopping - do