Covering what’s really going on in Bristol
Powered by 2,000 members
The Bristol Cable

Bristol’s education system is struggling because of poorly planned and hopelessly optimistic private finance initiative contracts.

Words: Sid Ryan
Illustration: Mish Scott

The giant loan stretched over the decades means spending millions each year just on servicing the interest.

Education is fast developing as an industry, as the flurry of ‘providers’ established in recent years merge and consolidate into corporate chains, regional blocs and specialist suppliers. This new market offers council-run schools, private schools (which can be businesses, charities or trusts), grammar schools, academies, multi-academy trusts, free-schools, religious schools, and more. While some people focus on this new array of ‘private interests’ gaining control over teaching, it’s worth remembering the ones that have been quietly taking over Bristol’s schools for a decade.

Bristol’s schools got their last taste of the business world when government tried to introduce a market to the education system via the private finance initiative (PFI). In the mid-2000s it stopped paying for new schools, instead inviting private financiers to fund most of its infrastructure programme. In PFI, a group of companies signs a contract with a public body to build a school, the contractors get a bank loan to pay for it and the council agrees to rent the building back for the next 30 years to pay off the debt.

The private bank loan to fund the construction at the heart of a PFI is inherently more expensive than public funding, due to a higher interest rate, onto which you add swaps, hedges, management, advisory fees and more.

The giant loan stretched over the decades means spending millions each year just on servicing the interest. The council’s most recent estimates show £133m of outstanding loan agreements with PFI contractors, onto which £129m of extra interest charges will accrue between now and 2035.

 

Schools PFI Name Contractual Owner Contract Term Building Cost

(+Inflation)

Total Contract Cost Annual Cost Interest Charge Component
Bedminster Down School, Henbury School, Orchard School and Oasis Academy Brightstowe Bristol Schools Limited – Phase 1A Aberdeen Infrastructure 2007-

2032

£133m

(£173m)

£434m £9.5m £5.1m
Brislington Enterprise College, Bristol Brunel Academy, Bristol Metropolitan Academy and the Bridge Learning Campus Bristol PFI Limited – Bristol BSF Skanska, Amber Infrastructure & John Laing Infrastructure Fund 2008-

2035

£60.5m

(£75m)

£224m £17.7m £7m

* Figures from Bristol City Council accounts 2015/16, projecting to this financial year.

The ‘affordability gap’

The extra interest charges and higher total cost of private financing was understood by local authorities when they entered these deals. But they needed schools and it was government policy, so there was no alternative. Bristol council found themselves in the position of having to sign a 30-year contract containing an in-built ‘affordability gap’ set to drain its other budgets.

Twelve years since the first contract was signed, the affordability gap has become our problem – putting massive PFI repayments in direct competition with having more teachers and better education. With the financial appendices of the original plans redacted for embers of the public, it is unclear what the exact cause of the affordability gap is, but what’s obvious is that it exists, that it’s big and that it’s growing.

Let’s pick apart the 2015/16 figures from the bigger PFI contract, with Bristol PFI Ltd, delivering four secondaries and a primary school for 5,660 students in 2006. The treasury’s data is the the closest indication of the ‘planned’ PFI bill, which reads £15.5m for the year, whereas actual invoices from Bristol PFI Ltd come to £20.8m, nearly £3,700 per pupil. This contract is 25% overspent and has 18 years left to run.

While costs are ballooning, government support for the schemes is drying up. The grant to pay for both schools now only pays for the largest, leaving £12m per year for the other contract coming from the council and the schools themselves. Worse still, PFI payments rise annually with inflation but the government grant support doesn’t, leaving a widening gulf that inevitably means an education system that’s lower in both quality and equality.

Paying the piper

09-pfi-schools-mish-scottBristol council is left with a tricky problem: costs are way up and its allocated government funding is down. Unlike most overspent budgets, this one can’t be cut because of the ironclad contracts with the PFI companies. Even the most drastic cut, closing the school, will leave the council being charged for cleaning the empty corridors and still repaying the loan, which is just free money for whatever intermediary happens to be holding the contracts at the time.

On a similar note, the council could refinance the PFI loan to try and reduce the cost, but this would be false comfort. Yearly payments would be reduced, but debt pile gets pushed a decade or two further into the future and still grows at approximately £12m each year. It’s the kind of short-term thinking that got us into this mess to start with.

The only real option for dealing with this affordability gap is to to keep paying, and keep paying more. Last year a ‘one-off’ extra £5m was funnelled from Bristol’s Dedicated Schools Grant to the PFI contracts. The money didn’t solve anything and it wasn’t invested in anything, it was just to keep up with payments so they can be aggregated onto some fund manager’s balance sheet with preferable tax treatment.

Continuing to pay up at the expense of education isn’t right, but nothing else really really works – which makes the contracts a mess better swept under the rug and left for someone else to deal with. ‘Someone else’ in this instance includes the children just starting school, onto whose shoulders all this debt is accruing.

Public interest journalism is expensive, takes time and can be risky.

But powering Bristol’s media co-op isn’t.

Join the Cable

Read more on: education, privatisation

Comments

Report a comment

  • Danny says:

    I’ve got several FOI requests still outstanding on both Bristol Schools Ltd & Bristol PFI Ltd from about 6yrs ago. There’s way more to this than just large PFI repayments. The questions BCC refuse to answer (even after the ICO told them to respond) is exactly who is benefiting from these PFI deals. I suspect but have no proof (as BCC won’t answer the FOI requests) that senior Council officers, some Councillors and ‘colleagues’ of both these groups have financial interests in the PFI Co’s that they signed the deals with.

    • Sid Ryan says:

      What do you mean by financial interests in the PFI co’s? Cant see how that would work through an ownership/investment route. And on ‘exactly who’s benefiting’ isn’t it just the contractors, consultants, legal advisors etc What am I missing?

  • danny says:

    Follow the money and the cost (compared to the going market rate at the time) of ‘services’ charged by contractors in particular some of the ICT contracts.

    This is over 10yrs old mind and there is a less than zero interest at BCC to revisit it for a multitude of reasons. This is the easiest and most common way of making money in local Govt (think Green Capital invoices) and possibly some of those involved might still employed and making similar spending decisions.

    Is it illegal? probably not. Is it fraud to charge services at a much greater cost than market rate? Its very hard to prove. Is it illegal for a Council employee to agree to payments to a company they or a close colleague may have an interest in? Most definately not as it happens all the time but thats why we have scrutiny (the Cables own excellent article on the conflicts of interest within the Green Capital grant approvals shows the quality of scrutiny both internally and externally).

    However there are a few facts, the scrutiny and governance at BCC especially over spending is non existent and their exterior auditing could be described a Enron-esque.

    Just to confirm I’m not suggesting anything illegal has taken place.

    • Sid Ryan says:

      If there was any untoward procurement on the part of the council, wouldn’t this be an old issue by now? Isn’t the whole point of a PFI contract that they’re so immovable that LAs are bound to pay for whatever old garbage the original team agreed? As in, who’s still around in a position to directly benefit from this?

      Maybe better to email sid@thebristolcable.org. I mean, we wouldn’t want to suggest anything illegal had taken place.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Edition 20 Investigations Banner Home Page

Revealed: Thousands of kids are being put in isolation, fuelling schools debate

Edition 19 Moving On: Racism Against Travellers Banner Home Page

Traveller kids are being “pushed out” says teacher

Features Edition 19

Communities standing up: college students, skaters and migrant mums

Banner Home Page Edition 19 Investigations

Investigating private schools: Not just the fees that are unfair

Banner Home Page Opinion Edition 18

Opinion: Our children’s future must not be built on sand

Reports City

Fighting the gig economy – of academics not students

Powered by members

If you like our work, join us. For as little as £1 / month.

Join now