Council pulls out of PFI for schools deal

As Railtrack investors reel over their treatment by the Government, evidence is emerging that the public sector's honeymoon with the private sector may be hitting a rocky patch.

Several public finance initiative deals have floundered in recent weeks and, with the City more cautious about dealing with the Government, more could follow. A significant PFI deal with Brent Council in London, where 17 schools would have been refurbished, repaired and maintained, has been shelved. The bidders, Jarvis, the facilities management group, and Accord, an educational services firm, are understood to have tabled £40m offers but the council rejected the scheme because it was not "value for money", according to a letter sent to headteachers. Kent Council also pulled the plug on a technology and finance outsourcing deal with Hyder Business Services.

Local politicians are sceptical about PFI's ability to deliver value for money. "We can see no evidence that the long-term value for money is present in PFI deals," said Alan Williams, the leader of the council in Barnet, north London. "The benefits arrive now but the costs are huge in the future."

Last week the Government launched a charm offensive to try to win back investors' confidence in PFI, after their Railtrack bombshell. Stan Patey, the head of Capital Strategies, a corporate finance house that specialises in PFI deals, warned: "If [the Government] do not sort out Railtrack in a proper manner, this will create a deflation in some PFI initiatives."

Unions are staunchly opposed to PFI deals and they have lobbied local government heavily. "PFI was set up to bring private investment into the schools," said Tony Warr, a GMB organiser. "Instead, PFI is costing the taxpayer billions in profits to the private sector. The Brent scheme was 60 per cent over budget. How can that be value for money?"

A spokesperson for Brent Council said: "For reasons outside the council's control it has not been possible to proceed with this scheme." A Jarvis spokesperson said the company was not concerned about the collapse of the Brent deal, and no dip in PFI deals had been noticed.