My hon. Friend—my next-door neighbour MP—pre-empts my argument. My amendments relate specifically to the 700 existing contracts, because I believe—I am glad my Front Benchers support this—that we can and must do something urgently about the damage these 700 contracts are doing every single day in schools where headteachers are having to consider sacking people but cannot cut the repayments, and in hospitals that are having to cancel operations but cannot reduce the repayments to their lenders.
There is a sixth-form college in Haywards Heath with no sixth form, because nobody will take on the school’s PFI debt. We keep talking about Northamptonshire Council, which is selling its own buildings because it is going bankrupt. It will owe £240 million to just five PFI deals in the next two to five years, of which £77 million is interest payment. Surrey Council is also in financial difficulties. It has £386 million of PFI commitments that it will not be able to reduce, of which £51 million alone is interest.
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We now know, from Carillion and the problems at Interserve, that the idea that working with the private sector would somehow transfer the risk of construction and management projects to the private sector has been thoroughly debunked. It is very, very simple: we do not let schools and hospitals go bust, because we know that that would mean that kids would not get taught and patients would not get treated. So why we have got into deals, and why we continue to get into deals that presume we can somehow get out of them if contractors do not deliver, is a mystery to me. Certainly, a debate for another time in this place would be on a better way to borrow when there is so little competition for our business. I believe that that is where the answer lies. When we look at the industry and at what amendments 1 to 4 would do, we are not talking about an industry of hundreds of companies. The work by the Centre for Health and Public Interest found that 92% of all the PFI deals in the NHS were owned or appeared to have equity stakes from just eight companies. This small number of companies have captured a market and are therefore setting a price. We and the public sector are paying the consequences.
I looked at one of the companies, Innisfree, which owns my local hospital, Whipps Cross. It has just 25 members of staff. It is not doing the day-to-day running of Whipps Cross: booking the operations, organising the blood tests or feeding back to patients. It stands to make £18 billion from PFI deals and it has its property based over in Guernsey. Those eight companies—Balfour Beatty, Barclays, Dalmore Capital, Equitix, Innisfree, Interserve, Semperian and Veolia—are making millions of pounds in profit as we watch our councils go bust, our schools close down and our hospitals struggle. Yes, it has got harder under this Government because of the cuts they have made, but under any Government asking our public services to pay back at such excessive rates of interest would be untenable. Let us look at what we could actually do and where my amendments have come from.
I hear and understand the calls from people to cancel these contracts outright: to rip them up and say, “We are not going to pay.” But we know that these contracts are just as expensive to cancel as they are to carry on. They have been drafted specifically to require full-cost
recovery to lenders to make sure that their interests are always protected. As the NAO highlighted, it is not just about repayment charges and covering those costs. We would have to cover the interest rate swaps that were built into the contracts to make sure that they are almost always profitable. It would cost £220 billion to tear up the contracts. Indeed, the Lithgow judgment from the Council of Europe in the 1980s clarifies explicitly the law around nationalisation and the compensation that would be required to be paid to companies were we to cancel the contracts.
Contract law might be on the side of the legal loan sharks to the public sector, but tax law is not. Yes, I have been through the 400 pages of the standard contracts. I have seen those clauses, but I have also seen the clauses that clarify that tax rates can change. Indeed, I know the Government agree, because when I have asked them about the tax rates and the taxes the companies are paying, they seem to think that the benefits from the changes to the tax regime are “to the victors the spoils”. That is why I have tabled my amendments. I believe that Parliament and MPs struggling in their constituencies with these loans would take a very different view. Taxation rates and corporation tax matters. When the value-for-money assessment on using PFI was done, there was an explicit calculation included on how much corporation tax the companies would pay. Most of the 700 existing deals were signed at rates of 30% or more.
I am sure that the hon. Member for Croydon South (Chris Philp), in his advocacy of cutting corporation tax, would not agree that when these companies face rates of 17% and his local schools and hospitals—I know that many south London hospitals are affected by PFI—are not getting the public investment they desperately need to keep going, the companies should benefit in that way. That was the amount of money that they agreed to pay at the point at which the contracts were signed.
We have been through the accounts. The numbers the Centre for Health and the Public Interest can give are small-c conservative, because we cannot be clear about when companies might have deferred their tax liabilities, but already, in the NHS alone, the companies have had a windfall of £190 million through the reductions in corporation tax, and in our school system they will have had a windfall of £60 million by 2020. That is money we expected for our public services. In addition, we did not expect to pay excessive rates of interest, but the evidence is there. The question for all of us is: what can we do? What action can we take?
Amendments 1 to 4 speak to what we could do now—this year, within months—to send a clear message to the PFI companies that time is up; we are no longer going to accept that kind of contract and the damage they do to our public services. If that small group of companies will not come forward with a proposal to reduce repayments, I gently urge the Minister, whose Department has resisted some of my questions about how often he has met these eight companies, to agree to getting them around the table, examining their loan portfolios and reducing the costs; then, we can start to generate some real savings. Asking individual hospitals and schools to renegotiate, against the companies’ expensive lawyers, will save very little, but if the Government take the lead—I hope the Minister will explain today how he intends to do that—in negotiating with the companies,
we could get money back now. If we cannot get these eight companies to negotiate—if they continue stubbornly to resist any change in the contracts—then yes, let us use a windfall tax to make sure we get cash back for our public services.
Amendment 1 asks for a review. I hope that the hon. Member for Croydon South enjoys as much as I do reading the founding resolutions of legislation such as this Bill and understanding what it is possible to do as a Back-Bencher, or as an Opposition Member. The amendment simply asks for a review of how much would be raised were we to apply the bank levy to these financing companies.
If amendment 1 does not tempt the hon. Gentleman, perhaps he could look at amendment 3, which is more explicitly about calculating a windfall tax on the companies. It is designed to enable us to work out how much extra they have made from the original deals, and to claw that back by adjusting their tax allowances. At this point, we are simply trying to clarify how much the measure would raise, to give the Government the negotiating tactic they need to get the companies to do what is right—to get round the table and see how to consolidate their loans, just as we would with people who come to our constituency surgeries having got themselves into debt.
The amendment is about sending a clear message to the industry that Parliament will act—that we will not tolerate another year of listening to headteachers and hospital managers telling us that they cannot cope with these loans. We will do something about it. The Government will claim that the companies are entitled to the bonus because they took on the risk of the buildings, but it is clearly an unexpected bonus, and clearly an opportunity to look at the contracts and make progress. If the Minister will not accept the amendment—if he will not, today, commit to negotiating with the companies to get back the money that hospitals, schools and councils throughout the country that are going bust urgently need—he has to explain how he will get us a better deal on the existing contracts.
I put the Minister on notice. It may be that that we cannot tear up the contracts, but a Labour Government would get those companies around the table and make sure that they paid their dues. We would make sure that the excessive profits are brought back, so that teachers in our constituencies do not have to fund raise to pay for books and pencils for students while the companies report millions, if not billions, of pounds of profit at our expense. George Bernard Shaw was right: sometimes political necessity becomes a political mistake. The necessity here, now, is to act, and I urge the Minister to listen.