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MPs criticise ‘scandalous’ PFI schemes for failing waste projects

More than £200m has been paid in grants to three councils for waste management projects in the last 15 years, even though key facilities have yet to be built.

The Public Accounts Committee (PAC) said that “lax” and “poorly drafted” Private Finance Initiative (PFI) funding agreements, signed off under the Labour government, to support the building of local authority waste processing plants, have failed to deliver value.

It was stated that funding agreements with Surrey and with Herefordshire and Worcestershire councils signed by the old Department for Environment, Transport and the Regions, meant central government started paying grants to the local authorities as soon as the contractors began to deliver waste management services rather than waste management assets.

As a result, it said £124m had been paid to Surrey County Council since 1999 although a new waste management facility is not due to be operational until 2016-17.

Herefordshire and Worcestershire councils received £84.5m although the contractor could not secure the necessary funding for a new recycling plant after it struggled to get planning permission. The councils ultimately decided to build and finance the project itself, outside the scope of PFI.

PAC chair Margaret Hodge MP said: “The supporting PFI contracts signed by the local authorities did not require all of the expected assets to be constructed, resulting in £213.5m in grants having been paid to the councils over the last 15 years with none of the main waste assets to show for it.

“Later, the Department for Environment, Food and Rural Affairs (Defra) only altered its funding agreements with these councils in 2013 when the Department negotiated a £30m reduction in its payments to Herefordshire and Worcestershire Councils, and a change in the timing of its payments to Surrey County Council.”

While the current government had succeeded in reducing the taxpayer's exposure in both cases, PAC said Defra’s handling of a separate contract with Norfolk County Council in 2012 had been “poor”.

With regards to the Norfolk contract, PAC was stated that Defra signed a funding agreement with Norfolk County Council in February 2012 to contribute £91m of PFI credits towards a 25-year contract to build an energy-from-waste facility.

Norfolk County Council estimated that this would have equated to £169m in grant payments. However, the planning application to build this facility near King’s Lynn was called in by the secretary of state for communities and local government, and as a result the council missed the deadline in its funding agreement with the Department to obtain planning permission by 10 June 2013.

Defra subsequently revoked its funding in October 2013 and, after initially deciding to proceed without central government funding, Norfolk County Council terminated the PFI contract in April 2014. It is now liable for about £33.7m in compensation to its commercial partner.

“It’s scandalous that taxpayers in Norfolk have been left in the lurch and landed with a bill of around £33.7m because the department withdrew its funding for the Norfolk waste plant in October 2013,” said Hodge. “This decision was a contributing factor to the Council’s decision to cancel the contract the following year.”

In PAC’s report – Department for Environment, Food and Rural Affairs: oversight of three PFI waste projects – it has been recommended that Defra should consider including other forms of support to help local authorities manage their waste in ways that are flexible enough to deal with changes in technology and waste levels to ensure local authorities are not locked into projects that provide more capacity than is required and are very expensive.

It was also stated that the Department should act with far greater urgency when it has concerns about a project’s progress. A government spokesperson said: “Defra's responsibility is to ensure public money is used appropriately and we were very clear in the timely advice we provided to these PFI projects as the National Audit Office has previously recognised.

“Due to factors at local level these projects could not proceed as planned.”

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