The £150m cost of PFI deal for six Norwich schools - and how it impacts pupils and heads
PUBLISHED: 11:04 30 April 2018 | UPDATED: 16:52 30 April 2018
A planned £79m bill for six schools in Norwich built under a private financial deal could cost taxpayers £150m by the end of the contract.
In 2006, Norfolk County Council began a 25-year private finance initiative (PFI) with Academy Services - a partnership between Kier Group and Dexia Public Finance Bank - to build four primaries and one junior, extend one secondary and maintain all six.
The contract value is £79m, but government figures estimate the unitary charges - the annual sum paid by the county council - will reach £148m by its end in 2032/33. The figures - published in 2016 - show £41m had already been spent by 2014/15, with 18 years left.
It means that children who started their first year of school in 2006 will be 30 by the time the contract is paid off.
But with rising inflation, contract changes or unexpected repair work, the final cost of the deal - which benefitted from £61m in government PFI credits, a now-scrapped financial support - could continue to rise.
A county council spokesperson said while the spend had increased, it was in line with the original project agreement, and “typical” of PFIs.
Today, the six schools - which are rated either good or outstanding by Ofsted - are all hovering at capacity and benefit from modern facilities, despite tight budgets limiting investment in schools elsewhere.
Carol Dallas, head at Taverham High School, which was redeveloped under the PFI, described their school site as “immaculate” and said: “We do really benefit from having a great building – I don’t have to worry about the management and getting contractors in, and they keep the building up to date.”
But she said the facilities came at the cost of flexibility.
“If we were in a normal school, and I was aware that funding would be tight over the next two or three years, I could look at making reductions in certain areas, but I can’t do that. There’s no power to negotiate and it is very inflexible.
“If we wanted to put up shelves, say, there’s quite a lot of process. They charge not just the costs of putting it up, which can be higher than we would otherwise pay, but also life cycle costs every year to keep it up to date.”
The cost for the contract - which includes cleaning, maintenance, security, energy and care-taking - makes up 8.6pc of the school’s budget. With wages accounting for 80pc, it leaves little wiggle room to make savings.
It even limits when the school can be accessed - with a pot of ‘additional hours’ the school can use for evening events.
“I came to the school after the PFI started, and part of the attraction is that it has amazing facilities... I love the fact that we have great faculties, but there’s just not much flexibility over what I can do with my budget.”
Council figures show £42m was paid to Academy Services - which in 2016 made a post-tax profit of £258,000 - in the seven years from January 2011, roughly £500,000 a month. The government estimates the unitary charge in each of the next five years will be £6.1m.
The council said initial agreed costs were reviewed yearly to “reflect indexation” and “changes schools have requested over time”.
“As a result the spend has increased slightly, and in line with the terms of the project agreement,” they said. “This is typical of any PFI project.”
They said at the time, PFI was the only funding available to develop state-of-the-art schools, and the costs included a range of services that non-PFI schools paid for.
“We know that high-quality buildings can boost teaching and learning and all of these schools are now judged as good or outstanding,” they said. “We can’t directly compare the costs of PFI to other capital funding sources but a competitive process was undertaken and the contract was market tested.”
In 2011, Kier Group sold its stake in the PFI and a similar deal in Oldham for £9.2m, with HICL Infrastructure and Kajima Partnerships buying stakes.
Scott Lyons, National Education Union Norfolk spokesperson, said staff at PFI schools were “frustrated” at the red tape.
“In a normal school, if a light goes out in the classroom it can be replaced by a caretaker quite quickly,” he said. “In a PFI school there’s more steps, more time lost and at a huge cost for the school.
“It’s money that should be spent in the classroom on teaching and learning. It’s criminal.”
Focus on life chances rather than profits
Stuart Allen has been head at Mile Cross Primary for 10 years and led its predecessor school for eight, through the introduction of the PFI.
He said the PFI provided an excellent site for pupils, but came with inflexibility and high costs. He said, as an example, the school had to seek permission before putting up display boards, for which it can then face life cycle costs.
He said: “We never underplay the huge impact such a modern and inspiring building has played on raising the profile of schooling in an area such as Mile Cross. From a headteacher’s point of view, it all comes down to the management of such projects. Clearly the private sector has shareholders and an ultimate pressure on financial performance year on year.
“How does that stack up against the life chances and education of some of the most deprived and vulnerable children in the land? For PFI to be seen as an effective tool, especially for schools, more needs to be done through the management process of such projects and a focus on improving the life chances of our children rather than profits and costs.”
PFI: A factfile
• A PFI is where a private firm handles the up-front cost of a major capital investment, such as a new hospital or school, for a public body. The body then makes annual repayments. Contracts typically last for 25 to 30 years.
• They were first used in 1992 under a Conservative government, but were expanded under Labour.
• Supporters say it avoids public bodies borrowing large sums upfront, and transfers the risk of construction and maintenance to the private sector.
• But critics say they are inflexible, and the total cost of the projects is often significantly more than their worth. Interest, payments and ongoing maintenance can continually add to project - and taxpayer - cost.
• In January, a National Audit Office report found building schools cost 40pc more under a PFI than if funded by government borrowing. For hospitals, their figure was 70pc.
• At the time, there were 716 PFI projects in Britain either under construction or in operation, including one at the Norfolk and Norwich University Hospital.
The PFI came amid a major schooling shake-up, from a three to two-tier system.
• Taverham High - significantly redeveloped in 2007. It is rated good by Ofsted, has a capacity of 1,249 and a roll, as of January, of 1,137.
• Lakenham Primary - built in 2007 as a merger of Lakenham First and Middle Schools. It is rated good by Ofsted, has a capacity of 420 and roll of 432.
• Heartsease Primary Academy - built in 2007 as a merger of Heartsease First and Middle and Woodside First. Its Ofsted rating is outstanding, its capacity is 436 and roll is 524.
• Mile Cross Primary - built in 2008 as merger of Norman First, Dawson First and Mile Cross Middle. Its Ofsted rating is outstanding, capacity is 470 and roll is 432.
• Bluebell Primary, in Eaton - built in 2008 as merger of Northfield First and Blackdale Middle. Ofsted rating is good, capacity of 210 and roll of 261.
• Lionwood Junior - built in 2008. Good Ofsted rating, capacity of 360 and roll of 300.
The EDP says
Today, we’ve explored the true cost of a private finance deal for six schools in the Norwich area.
We’ve written before about the questionable value for money of the Norfolk and Norwich Hospital PFI, and we’ve read nationally about the rocketing costs of similar schemes.
And this is no exception. Data shows the £79m deal is more likely to cost £150m – and that’s without unexpected costs along the way.
It’s cause for more than one worry.
Firstly, whether at Westminster or County Hall, we’re talking about taxpayers’ money.
Secondly, the schools have their hands tied in what they can spend and, more importantly in a time of squeezed budgets, what they can save.
Then, thirdly, what it means for our pupils. If schools can’t make back-office savings, does it risk bringing cuts closer to the classroom?
The council says, at the time, there were few other options to find funding for major schemes.
It’s easy to see the temptation – buy now, get brand new facilities, pay later.
Many of us will have done the same thing – admittedly on a much smaller scale.
And politicians are waking up to the risks. There has been a move away from PFIs, with some pledges to scrap the deals.
It’s a shame it’s taken 25 years to wake up to the facts.
For the time being, our schools – and our taxpayers – will continue to pay the price.