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Business Comment

Unfortunately, this isn't the answer to all our PFI woes


Outlook This week's exit by Northumberland County Council from its local health trust's onerous hospital PFI contract with Lend Lease saved taxpayers millions, but can it be replicated?

To recap, Northumberland is borrowing more than £100m from the Treasury and lending the money to its local NHS trust to buy out of the remaining 19 years of a service contract. The deal will save it £3.5m a year.

Many of the early PFIs were financially disastrous – proved by these massive savings. So it seems logical that every effort should be made by other trusts to buy out their PFIs.

Steve Mason, Northumberland's lead executive director, tells me several other councils have asked him for advice. Unfortunately, he's not too optimistic that his council's trick will work elsewhere.

First, the NHS trust has to be good for the money: no council should be lending to an unstable hospital which could end up struggling to make the repayments. Second, a loan is less likely to work in a big city-centre hospital, where the catchment area might be spread across several different councils. Finally, the council and NHS trust must have a strong working relationship – apparently not always the case.

These three hurdles seem to weed out many potential PFI buyouts. But another issue, as Balfour Beatty's hugely lucrative sale of PFI school and hospital contracts showed last week, is that local authorities would face stiff competition from overseas infrastructure funds bidding to buy contracts.

Sadly, Tony Blair and Gordon Brown's legacy of corporate profiteering from PFI has decades to run yet.