Hidden debt shock at County

Audit Committee at the County Council is a great place for things to come up ‘under the radar’.

Our remit on the committee is to cast a regular and independent eye over the financial and governance arrangements across the different departments of the County Council. It’s the least ‘political’ committee of the authority and has a genuine feel of independence and non bias.

And because of that a lot of information comes to us in a rather less sterilised and politically ’spun’ way. The County’s finances are massively complicated. So many different service areas and different ways of setting out the information. But what became clear today was that not all the debt the County owes is as obvious as it might be.

Private Finance Initiatives or PFIs, as they are better known, are agreements between large public sector organisations and commercial businesses. They are used to finance public infrastructure projects such as roads or schools and hospitals when there isn’t enough public money available. The commercial business funds the capital costs of building work and usually adds in long term maintenace and other ‘ongoing extras’ while the public sector body pays for the lot over 20 or 25 years.

I’ve got mixed feelings about PFI arrangements. In some circumstances they may be an effective way of providing modern facilities. They are, however, expensive. Not just the built-in interest payments either; it’s the whole deal over the period which can work out several percent more than a normal financing arrangement. And at hundreds of millions or even billions, that is a big difference over 20 years.

But the biggest problem, I think, is when it becomes ‘too easy’ to finance things that way. It’s like sticking everything on a credit card but on a much larger scale. It’s all debt and needs paying back eventually. As the repayments get bigger and bigger and the long term debt becomes greater and greater with every new PFI it takes more and more tax money to service them.

I did say that the County’s finance arrangements were complicated and I must admit I didn’t realise there was quite the level of PFI agreements with the County Council there are. That’s where I come back to Audit Committee because the PFIs only came to light when we were advised of new public finance rules coming from Europe which mean that PFI agreements must, in future, be included as debt in public sector accounts. I didn’t realise they weren’t included in the £600million of County debt owed… I do now.

That means the actual debt figure is currently over £800million. And with the Staffordshire incinerator to be funded by yet another PFI and more coming along soon after that to build new schools in Tamworth the figure grows to over a billion. Quite a ‘credit card’ bill which equates to about £3200 for every single household in Staffordshire and many tens of millions in repaments each year.

The new EU rules also mean the UK’s public debt will jump by billions the moment the rules change.

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