Every man, woman and child in Britain is more than £3,400 in debt – without knowing it and without borrowing a single penny

Jonathan Owen in The Independent

Every man, woman and child in Britain is more than £3,400 in debt – without knowing it and without borrowing a single penny – thanks to the proliferation of controversial deals used to pay for infrastructure such as schools and hospitals.

The UK owes more than £222bn to banks and businesses as a result of Private Finance Initiatives (PFIs) – “buy now, pay later” agreements between the government and private companies on major projects. The startling figure – described by experts as a “financial disaster” – has been calculated as part of an Independent on Sunday analysis of Treasury data on more than 720 PFIs. The analysis has been verified by the National Audit Office (NAO).

The headline debt is based on “unitary charges” which start this month and will continue for 35 years. They include fees for services rendered, such as maintenance and cleaning, as well as the repayment of loans underwritten by banks and investment companies.

The situation is expected to worsen as PFI projects spread across the world (Getty)

Basically, a PFI is like a mortgage that the government takes out on behalf of the public. The average annual cost of meeting the terms of the UK’s PFI contracts will be more than £10bn over the next decade.

And the cost of servicing PFIs is growing. Last year, it rose by £5bn. It could rise further, with inflation. The upward creep is the price taxpayers’ pay for a financing system which allows private firms to profit from investing in infrastructure.

An NAO briefing, released last month, says: “In the short term using private finance will reduce reported public spending and government debt figures.” But, longer term, “additional public spending will be required to repay the debt and interest of the original investment”.

A case in point is Britain’s biggest health trust, Barts Health NHS Trust in London, which was placed in special measures last month. It is £93m in debt – struggling under the weight of a 43-year PFI contract under which it will pay back more than £7bn on contracts valued at a fraction of that sum (£1.1bn).

PFI’s were the brainchild of the Conservative Party in the 1990s, but were swiftly embraced by New Labour. Successive governments signed hundreds of the deals. PFI-funded schools, streetlights, prisons, services, police stations and care homes can be found across Britain.

The system has yielded assets valued at £56.5bn. But Britain will pay more than five times that amount under the terms of the PFIs used to create them, and in some cases be left with nothing to show for it, because the PFI agreed to is effectively a leasing agreement. Some £88bn has already been spent, and even if the projected cost between now and 2049/50 does not change, the total PFI bill will be in excess of £310bn. This is more than four times the budget deficit used to justify austerity cuts to government budgets and local services.

Gateway Surgical Centre, London, is run by Barts Health NHS Trust, which is struggling under a £7bn PFI (Alamy)

Responding to the findings, TUC General Secretary Frances O’Grady said: “Crippling PFI debts are exacerbating the funding crisis across our public services, most obviously in our National Health Service.”

According to Jean Shaoul, professor emerita at Manchester Business School, PFIs have been “an enormous financial disaster in terms of cost”. She added: “Frankly, it’s very corrupt... no rational government, looking at the interests of the citizenry as a whole, would do this.”

Unlike government funding, PFI’s cannot be adjusted to match the economy’s fortunes. They are governed by contracts that often run to thousands of pages. In contrast to the radical cuts to public spending, less than 1 per cent has been trimmed from the total cost of PFI deals since 2012.

Danny Alexander, Chief Secretary to the Treasury, admitted last month: “Too many of the old PFI deals were poorly negotiated... with high costs draining local and national coffers.”

PFI contracts could escalate like America’s subprime mortgage fiasco (Getty)

Last year The Independent revealed how firms given 25-year contracts to build and maintain schools doubled their money by selling their shares in the schemes less than five years into the deals. Four – Balfour Beatty, Carillion, Interserve, and Kier – made combined profits of over £300m.

Repeated concerns over projects suffering years of delays and soaring costs have been raised in Parliament in recent years, chiefly via the Public Accounts Select Committee. Its chair, Margaret Hodge, has spoken of Labour’s promotion of the deals during its time in power: “I’m afraid we got it wrong... we got seduced by PFI.”

Allyson Pollock, professor of public health research and policy, Queen Mary University of London, said the diversion of funds from other budgets to PFI payments make the schemes “an engine for closure of public services and further privatisation”.

Rail privatisation: legalised larceny

Train operators invest little cash but take massive profits. This wasn't what the Tories promised

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 4 November 2013 20.00 GMT

A London commuter train: no free seats, no free Wi-Fi – but good news for shareholders. Photograph: Dan Kitwood/Getty Images

"It needs access to private capital, access to private management, it needs more money into the business, and all this will become possible." David Cameron on Royal Mail, October 2013

As they flog our public assets, government ministers always promise one thing: that they will be better cared for by the new private owners. Sure, they may look like hedge funds out for a fast buck, but we must consider them investors, who will plough in their own millions to burnish the family silver.

Thatcher said it in the 80s; and now, during this second coming of popular capitalism, her grandchildren are saying it too.

While giving away Royal Mail at a bargain-basement price, David Cameron promised the result would be a flood of private cash. When a unit supplying the NHS with blood was handed over to private equity, Jeremy Hunt's officials pleaded the need for investment. And you'll hear that justification over and over again, as the coalition privatises a further £15bn worth of companies, departments and assets currently held by the public.

Never mind ownership, ministers will soothe us: lie back and think of the investment. So let's do that. Let's go back to the last great privatisation and see how much investment it yielded.

Tuesday marks the 20th anniversary of rail privatisation, the day when the government finally pushed through the legislation to break up and sell off our train services. Throughout the flotation process, successive transport ministers pointed at the goodies to come. Take this reliably bouffant pledge from Steve Norris: "There is not the slightest shadow of doubt that, freed from the constraints of public sector financing, train operators … will generate substantially greater investment in the railways because of the privatisation of British Rail."

Was he right? I asked academics at the Centre for Research on Socio-Cultural Change (Cresc) to calculate how much companies such as Virgin and First Group are investing in their services. They looked at their return on capital employed, which is to say the amount train operators made on the money tied up in their business. A low ratio would indicate an industry doing as Norris and his colleagues foretold: ploughing cash into delivering a better service. A really high ratio would indicate the opposite: barely any cash going in.

The figures are astonishing. In the financial year ending in March 2012, the train companies gained an average return of 147% on every pound they put into their business. Forget about high: that is stratospheric. It suggests that – despite all the promises made by the freshly rehabilitated John Major – the train operators are investing barely anything, but making bumper returns.

If you're a pensioner, imagine a savings account that promised to give you next year a 147% return on your cash, rather than the 1% you'll typically get now. If you're a first-time buyer, imagine selling up next year at a 147% markup – impossible even in primest, most central London.

Other businesses would kill for the kind of low-investment, high-returns that Arriva, Stagecoach and the rest are making from their train sets. Big supermarkets get about £1.08 back for every quid they put in: all that stock ties up a lot of cash. Even the supposed profiteers over at Barclays would punch the air at a 10% return. For every pound the railway barons put in, they get £2.47 back.

And that most recent figure isn't a fluke. The Cresc team went back all the way to the start of the electronic database in 2004, and found that year after year the pre-tax return on capital employed was never less than 100%. Just as remarkable are the train operators' dividends: pretty much all the profit after tax was paid to shareholders.

No wonder Richard Branson is a billionaire with his own private island. No wonder Tim O'Toole, boss of FirstGroup, and Brian Souter, head of Stagecoach, are on more than a million quid a year each. They are rewarded handsomely for handing over every spare penny to their shareholders.

But by the same token, no wonder passengers in cattle class can't get free Wi-Fi, or even a seat on the evening train out of Euston: there's no cash left to make the services worth the often excessive fares. The really big improvements, such as the west coast mainline upgrade now enjoyed by Branson's business, are funded by taxpayers. Heads they win, tails we lose.

A train lobbyist reading this (hi there!) will tell you that measuring investment by the operators is barking up the wrong tree. Arriva and the rest are essentially commissioned by the government to run a line. But that ignores three things. First, the industry never stops banging on about its role as an "investor". Second, free cash without having to pony up much actual investment is very welcome to the Branson empire, among others.

And finally, if the operators are merely there as middlemen, to sell us tickets and clip them, then why do we need them? Specifically, why is Cameron so desperate to give the publicly-run east coast mainline to the private sector?

Capitalism is meant to be about private firms taking risks and reaping the rewards. The rail network on the other hand is about the public taking the risk and racking up huge debts, even while the private firms reap excessive rewards.

Look at those investment return figures again: that isn't the triumph of liberalisation; that's legalised larceny. It hardly bodes well for the next wave of sell-offs.

How foreign students with lower grades jump the university queue

By Holly Watt and Claire Newell

10:00PM BST 26 Jun 2012 The Daily Telegraph

The official agent in Beijing for universities in the elite Russell Group claimed that it could secure over-subscribed places for a Chinese student purporting to have scored three C grades in their A-levels - when British students are required to have at least A, A and B.

Undercover reporters were also told to tell the UK authorities that the student would be returning home immediately after graduation - even if that was not their intention – in order to secure a visa.

Universities were accused of profiteering by rejecting tens of thousands of British teenagers, currently sitting A-levels, so they can fill places with more profitable foreign students.

Universities say that even the new £9,000-a-year tuition fees for British and European Union students do not cover their costs, and they need to turn to foreigners who are charged 50 per cent more.

Headmasters at some leading private schools have told The Daily Telegraph that some of their foreign pupils were being offered places with lower entry requirements than their British counterparts.

Following concerns raised by academics and schools, undercover reporters visited Golden Arrows Consulting in Beijing, which placed more than 2,500 students in British universities last year, purporting to being looking for a place for a Chinese student.

The firm is the official agent for more than 20 British universities and acts as their representative in China.

The fictitious student was said to have achieved three C grades at A-level – far below the entry requirements of most leading British universities. However, they were offered a place at both Cardiff and Sussex.

The agent, Fiona Wang said: “We send student [sic] to Cardiff Business School to study accounting and finance with ACD. So with CCC we can help her”.

An applicant would normally need AAB to study this subject at the university, so the reporter asked again about the potential offer.

“If the student wants to study economics, it’s three Cs. So economics she can also do”, the agent replied.

When the undercover reporters asked what universities the student could go to if they re-sat their exams and managed to obtain three grades Bs at A-level, Ms Wang explained that those grades would mean that as well as Cardiff and Sussex, she could “choose” between the University of East Anglia or Southampton University.

“Even some high ranking universities, but not Bristol, not KCL [King’s College London], not Warwick”.

The undercover reporters were referred to another employee of Golden Arrow who offered to doctor documents to help the student’s application, including paperwork required to obtain a visa to study in Britain. Assistance with the personal statement that each student is required to fill in was also available.

Universities are able to make discretionary offers to students and there are no rules governing entry requirements.

Headmasters at some top private schools confirmed that they were experiencing growing problems with British students facing discrimination.

Many wealthy parents would be prepared to pay the higher fees charged to foreign students but the system bans this from happening.

Andrew Halls, the headmaster of King’s College School in Wimbledon, south-west London, said: “There was a boy this year who told me that he was made an offer dependent on him being a non EU candidate, and when he clarified the fact that he was a UK candidate, even when he appeared not to be, they said that the offer doesn’t stand.

“There are occasions when I have said to a candidate, if you can apply as an international candidate it slightly strengthens your hand.”

He added: “Universities are disincentivised from taking UK candidates. We have to address it.”

Richard Cairns, the headmaster at Brighton College, said: “Universities are increasingly searching for, and needing, overseas fees. It’s something we have noticed. It’s tougher for British students to get into top universities than overseas students… There is a higher offer rate to overseas students.”

A third leading headmaster said he was aware of cases where a pupil had dual nationality and applied to university from abroad with lower grades than would be accepted for a British candidate.

Since 2006, the number of foreign students has risen by a third to almost 300,000. Teenagers from China represent the highest proportion of overseas students. At the same time the number of British students missing out on a university place reached a record high last year of 180,000.

Last month, 68 chancellors, governors and university presidents wrote to the Prime Minister warning that the government’s immigration crackdown should exclude students, to drive the economy and boost university income.

The recruitment of foreign students by overseas agents is big business – almost all university websites have pages dedicated to listing their “partners” in each country for prospective students to contact about obtaining a place. Agencies compete for business with some being paid by both the student and agent.

Professor Alan Smithers, director of the Centre for Education and Employment Research at Buckingham University, said that “money is the main factor” in universities recruiting foreign students.

“The reason universities are recruiting more foreign students, is at its heart, about fees. Universities are business, they have to secure their future, they look at their income streams.

“There is the risk of standards being compromised if the driving force is the extra money these students are bringing in”.

From September the government will remove a cap on the number of British students a university can recruit if the applicant had A, A, B grades at A-level to ensure that high-performing teenagers are not denied places.

Next year the threshold will be lowered to A, B, B, but so far only a handful of universities have said they will participate because of concerns over costs of admitting more UK students.

The Daily Telegraph will expose further issues with the system later this week. The disclosures are expected to lead to demands for a review of entry requirements.

Golden Arrow admitted that it had found a place for a student at Cardiff with A, C and D grades at A-level but insisted this was an exceptional case.

It said it had “never” sent a student to Cardiff University with C, C, C grades, but that lower grades could be accepted during clearing for a number of high ranking universities.

The firm denied offering to doctor visa applications and said that when the agent had offered to write the personal statement for a student, he meant that it could “instruct students how to make a good PS [personal statement], but never write on behalf of them”.

Sussex University said, “We have not offered places on degree courses to international students in the way that you describe… We make no C, C, C offers whatsoever.

“It is possible, however, that during the Ucas clearing process offers may be made at slightly below the advertised entry criteria, but this is unlikely to drop by more than one or two grades.

“Any such offer would be the same for overseas and UK/EU students”

Sussex said that it did not enter clearing last year because of the cap on the number of UK/EU students it can accept and it had met its “limit”, but overseas students were offered places during this period because their numbers are not restricted.

Cardiff University said it was “unlikely” that any student would be offered a place to study with A-level grades C, C, C, but that the university “may vary its typical offer where there are mitigating circumstances or aptitude to study demonstrated by other means”.

It confirmed that in the 2011/12 academic year, 258 of its students applied via Golden Arrow, but said that agents “do not make admissions decisions”.

A spokesman for the University of Southampton said that international students were given the same offers as UK students. It said they would be investigating the allegations.

The University of East Anglia said that no student would be offered a to study maths with grades C, C, C .

My Weltanschhaung - 17/02/2012

I am glad to read that the Vatican has at last been forced to cough up some taxes from the income it generates. Though I was shocked that they were exempt from taxes this far.

I am surprised that David Cameron will offer Scots more devolved power if they vote No in the forthcoming referendum. I thought why not devolve more powers before the referendum and therefore give yourself a better chance to win the referendum?

It has taken the energy watchdog so long to realise that energy companies are profiteering. But what have they done - issued a warning, 'Cut prices or else...'.

It now appears that tax avoiding pay deals maybe rife in Whitehall. It appears that 4000 bureaucrats' pay deals will be reviewed.