LABOUR’S PFI (Private Finance Initiative) legacy was clear for all to see when schools started to crumble and fall down in Edinburgh recently. Despite the poor build quality of these schools, Edinburgh Council is paying out about £1.5 million per month to use these premises. Even so, as poor as the building quality may be, the financial implications of PFI are far worse.

The ever-increasing PFI debt is strangling public-sector bodies as more and more of their resources are top sliced to pay these private-sector deals. Let’s be clear here, Labour’s legacy for the public sector is a PFI debt mountain that is currently escalating ever higher. PFI was originally planned by John Major’s Tory Government as a way of getting investment into the public sector without it appearing on the national debt.

The idea was to get around the Treasury’s limits on government borrowing. Instead of borrowing in the usual way, public-sector bodies would pay a fee to a private company or consortium for the costs of constructing and managing the building of a new hospital, school or other facility.

Normally a PFI project would be owned by a newly created private company made up of a building firm, a bank and potentially a facilities management firm. This consortium would borrow from the finance markets at rates higher than the government, but because public authorities were only paying a fee, it was less (in the initial outlay) than the public authority borrowing for the full capital costs of a new building.

The real expansion in PFI deals came under Labour when then Chancellor Gordon Brown seized on this Tory policy, believing that these schemes would get debt off the Treasury’s books and make his stewardship of the nation’s finances look good.

Brown soon ensured that PFI became the only game in town for a public sector looking to repair the lack of investment in public assets that happened during the long Tory reign in Westminster. Between 1997 and 2008, a staggering 90 per cent of all funding for hospital construction in the UK came from PFI deals.

In Scotland, the focus on PFI as the only option for investment was quickly pushed ahead by then-Finance Minister Jack McConnell. This resulted in Scotland having a far higher proportion of the UK’s PFI-funded projects. Despite being about 8.5 per cent of the UK’s population, Scotland accounts for 40 per cent of all PFI deals.

What makes this worse is that during the period of Labour and the LibDems running the Scottish Executive, they managed to underspend the Scottish block grant by about £1.5 billion. This money was meekly returned to the UK Treasury. Apparently, despite forcing councils, the NHS and other public sector bodies into extortionate PFI deals, the successive leaderships of Donald Dewar, Henry McLeish and Jack McConnell couldn’t think what to spend that money on? The idea of using that £1.5bn to pay for new hospitals and schools was beyond them.

As well as interest rates so excessive they would make Wonga blush, the private companies behind many of the PFI deals found another scam to increase their profits.

The charges they passed on to the public sector were based on the higher interest rates that they had to use to get their projects funded. Then, normally when the school, hospital etc was built, they often returned to the finance market to renegotiate their own funding, cutting the interest they were paying. All the while though, the public bodies still paid the same fee that was initially agreed, resulting in the PFI companies making another massive profit.

It was only later that the Government stepped in and made sure that an element of this refinancing profit was transferred back to the public sector. However, a parliamentary question revealed that only about 15 out of 82 early PFI projects had claw-back arrangements in case of successful refinancing. It has been estimated that the lack of such a clause could have cost us, the UK taxpayer, up to a billion pounds.

From the beginning, a range of economists, politicians, trade unions and others all argued that PFI was a waste of funding and was nothing more than a massive transfer of public money into private hands.

In my own constituency, Renfrewshire Council will be top slicing its budget by £16.765m to pay for a PFI project that Labour signed up to in 2006. For schools with a build value of about £100m, Renfrewshire residents will eventually pay more than £547m, with the final payment coming in 2038. After what’s happened in Edinburgh, there must be a doubt over whether these schools will still be standing in 2038, and if they are, what condition will they be in.

A briefing by the National Audit Office went as far as to say: “In the short term, using private finance will reduce reported public spending and government debt figures.” Yet in the longer term, “additional public spending will be required to repay the debt and interest of the original investment”.

It’s clear that PFI was never really about providing value for money, it certainly didn’t achieve anything like that. It was more about allowing Labour and Tory politicians to look good in the short term, with no thought given to the costs for future generations.

It is strange, though, that with all the coverage on the Edinburgh PFI schools, and now on PFI in general, that TV broadcasters, and most mainstream media, haven’t got around to mentioning Labour’s involvement in the PFI deals. Essentially these deals have seen a stealth privatisation of schools, hospitals and other public infrastructure.

One of the main critics of PFI, Allyson Pollock, professor of public health research and policy, Queen Mary University of London, described the diversion of funds from other budgets to PFI payments as making the schemes “an engine for closure of public services and further privatisation.” It’s a warning I only wish previous politicians listened to.