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The shadow chancellor recently pledged that Labour would bring existing private finance initiative (PFI) contracts ‘back in-house’ if they are elected. Philip Vernon, partner at Ashurst, explains the proposals and their potential implications.
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The shadow chancellor, John McDonnell, announced in a speech at the Labour Party conference in Brighton on 25 September 2017 that ‘the scandal of the PFI, launched by John Major, has resulted in huge long-term costs for taxpayers while handing out
enormous profits to some companies’. He promised that Labour would ‘rip up’ PFI and, in addition to Jeremy Corbyn’s previous pledge not to sign any new PFI deals, Labour would ‘bring existing PFI contracts back in-house’.
Mr McDonnell also said that if Labour came to power ‘the government would intervene immediately to ensure that companies in tax havens can’t invest in PFI projects and their profits can’t be hidden from HMRC’.
This initial soundbite was tempered somewhat by the Labour Party press release which followed Mr McDonnell’s speech and which appeared to be somewhat less radical, stating ‘Labour will review all PFI contracts and, if necessary, take over
outstanding contracts and bring them back in-house, while ensuring NHS trusts, local councils and others do not lose out and there is no detriment to services or staff’.
A Labour spokesman said that shareholders in PFI companies would be compensated by swapping their shares for government bonds and ‘Parliament will assess the appropriate level of compensation at the point at which contracts are brought back in-house’.
In reality, it might be that only a relatively small proportion of PFI contracts would be brought back into public ownership under a Labour government. In an interview with the BBC on the day after Mr McDonnell’s speech, the shadow health secretary,
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