NHS PFI firms avoid millions in tax

Fees from NHS projects are filtered into off-shore companies.

As crippling repayments on private finance initiative (PFI) contracts force NHS hospitals to make cuts, a new report reveals that the firms profiting from the deals are using tax havens to avoid paying millions of pounds in tax.

A report by the European Services Strategy Unit, and covered in the Sunday Times, reveals that as many as 70 NHS PFI projects are based off-shore.

Expensive PFI contracts have become a huge burden on dozens of NHS trusts. Last week the government announced that ‘hit squads’ of senior government auditors are to be dispatched to seven NHS trusts who are struggling to pay PFI bills. Earlier this year, South London Healthcare Trust, which manages three South London hospitals, was the first trust forced into administration after its £61m annual PFI bills saw the trust’s budget deficit spiral unsustainably.

These budgetry black holes are having a real impact on patient care. In a paper for the British Medical Journal, academic Alyson Pollack claims that hospitals blighted by expensive PFI contracts are compromising on care, reducing staff numbers and cutting frontline services.

The findings of the European Services Strategy Unit report make particularly unsavoury reading given this backdrop of threatened patient care.

The Queen Elizabeth hospital in Woolwich, one of those run by the distressed South London Healthcare Trust, is just one of the PFI contracts implicated in the report.

The first hospital in London to be built with PFI money, the Queen Elizabeth is part-owned by three separate funds: Semperian PPP Investment Partners, Innisfree and John Laing Infrastructure Fund (JLIF). Guernsey-based JLIF owns over a quarter of the hospital along with a raft of other PFI stakes in hospital, housing and school-building projects. The firm paid just 2.5% tax on a £14.62m profit in the first six months of its financial year.

The revelations are not the first time that PFI firms have been shown to use off-shore companies. In April last year a BBC investigation revealed that HICL, an HSBC-established fund and one of the country’s biggest investors in PFI contracts, was paying less than half a percent tax on its £38m profit. Its portfolio of PFI investments included stakes in Portsmouth Hospital and the John Radcliffe in Oxford.

A spokesman for JLIF said said its infrastructure assets in the UK ‘pay normal corporation tax rates in the UK and the shareholders in JLIF pay tax on dividends and capital gains arising from their shares.’

HICL Infrastructure said it had registered in Guernsey because it could not list on the London Stock Exchange without a trading history. The company said it invested in a large number of companies which were incorporated in the UK and subject to UK tax.

Established under John Major’s Conservative government in the early 1990s before being massively expanded under Blair, PFI committed dozens of NHS trusts to contracts that soon became absurdly expensive and unsustainable. A 2007 NHS report found that fixed running costs (cleaning, maintenance etc.) at PFI-funded hospitals were often twice as high as the equivalent services at hospitals not locked in to long term contracts with private firms.

Earlier this year, the Guardian calculated that paying off current PFI contracts would ultimately cost Britain £300bn. Hospital buildings account for £70bn of this figure.

Margaret Hodge, chairwoman of the Commons Public Accounts Committee and now a fierce critic of PFI deals, has attacked the schemes as ‘extremely inefficient’. A report by the PAC estimated that the contracts were costing taxpayers four times what they were worth. Commenting on revelations that PFI firms are engaging in tax avoidance schemes Hodge said: ‘It is shocking. Those who write PFI contracts should now insist the companies stay onshore. If they don’t like it, they can walk away.’

Hodge’s bravado is all very well, but it seems in reality neither the Labour opposition nor the current coalition know how to go about untangling the NHS from the web of private finance contracts. Although the leaders of the three major parties have so far stopped short of promising to actively renegotiate PFI contracts, the idea has been mooted by an odd cross-party coalition of backbenchers. A parliamentary campaign named PFI Rebate, and run by Conservative Jesse Norman has won support for revisiting the contracts from dozens of Tory, Lib Dem and Labour MPs.

The detail of Norman’s plan is telling: there is no proposal for a mandate or new legislation, simply a polite request to the funds themselves to voluntarily give back ‘a small portion of their profits to the taxpayer’. It seems that the curse of these terribly negotiated contracts will be hanging over the NHS for years.

Read the Sunday Times write up of the European Services Strategy Unit’s findings (behind a paywall) here.