Opinion

Stormont needs to be more assertive over PFI deals

Newton Emerson

Newton Emerson

Newton Emerson writes a twice-weekly column for The Irish News and is a regular commentator on current affairs on radio and television.

The American company's contract has been dumped by HMRC following complaints it wrongly cut payments to hundreds of claimants
The American company's contract has been dumped by HMRC following complaints it wrongly cut payments to hundreds of claimants The American company's contract has been dumped by HMRC following complaints it wrongly cut payments to hundreds of claimants

THE British government has withdrawn its tax credits contract from Concentrix, an American outsourcing firm that performed much of the work in Belfast.

The dispute has descended into he-said she-said, with London blaming Concentrix for mishandling cases and Concentrix blaming Her Majesty’s Revenue and Customs (HMRC) for giving it inaccurate information about claimants - information it was contractually obliged to follow up.

HMRC has issued a statement criticising Concentrix’s service standards, Concentrix has accused HMRC of “attacking our professional credibility” and the Treasury has got in on the act by publicising 120 alleged instances where Concentrix did not “fully” meet performance standards.

It is rare for a spat like this to occur at all, let alone for it to take place in public. Even more unusual is the government’s speed and assertiveness. The two-year, £75m contract was awarded in May 2015. Not only has HMRC announced mid-term this will not be renewed but it has ordered Concentrix to spend the remaining eight months resolving problems and announced the firm will not be paid for uncompleted work.

A cynic might say this is a useful way for a new Conservative administration to wash its hands of a bit of a mess. Whether or not that is true there is a strong sense of a genie being let out of the bottle. Clearly, government does not have to tip-toe around its private sector partners to the extent we have come to expect from Westminster and Stormont.

The most obvious form of commercial cravenness at Stormont is the private finance initiative (PFI). This is the executive’s main borrowing power so it would be naïve to think it should never be used. However, there is overwhelming evidence that the executive has been naïve in its use.

In 2014, the assembly’s public accounts committee noted “there is no strategic programme to review PFI contracts and maximise the opportunities to realise value for money savings.”

It might be cheaper to buy some contracts out - a small number of health trusts and councils have done this in England. A review might also find it was possible to penalise or even sack the contractor. PFIs tend to be enormously complicated, creating loopholes and wriggle-room for both sides, yet as a rule it is only the private sector side that actively seeks to loop and wriggle.

Why can the executive not take a firmer line on its £7 billion of PFI debt? This is the largest liability Stormont has, with first call on its budget. Repayments have reached £400 million a year - more than the cost of delaying welfare reform, deferring water charges or cutting corporation tax. Think of the political, legal and financial contortions the executive has put itself through to secure those items while blithely stumping up an even greater fortune for what are in effect grandiose hire-purchase agreements.

A typical PFI contract in Northern Ireland runs for 30 years with a de facto interest rate of 10 per cent. This is double the long-term cost of government borrowing under normal circumstances and six or seven times the historically low rates of the past decade.

Interest is the return on risk, so what excessive risk are firms being asked to take? Payments are guaranteed by the Treasury and contracts are never reviewed by Stormont. The contracts themselves often contain get-out clauses for companies, inserted at their insistence to cover every foreseeable problem.

The real risk, then, is of what happened to Concentrix - a new government comes in and loses patience with the decisions of its predecessor. This risk is low enough at Westminster and virtually non-existent at Stormont, which only got its first opposition four months ago. Even that has only entrenched its two ruling parties further.

With this in mind, the DUP and Sinn Féin should at least obtain cheaper rates for future public-private partnerships. Brexit increases the pressure to build infrastructure through PFI, because it is closing off European funding and financing options. This pressure could be reduced through new borrowing powers for Stormont, as proposed by Sinn Féin finance minister Máirtín Ó Muilleoir. Perhaps there would be less public nervousness about that idea if it was sold as an alternative to PFI.

Thanks to Nama, we have seen how supine Stormont can be towards developers, banks and consultants - exactly the kind of businesses it deals with through PFI. But in a PFI deal, Stormont is the customer - and more than most customers, it can assert itself as right.

newton@irishnews.com