PFI projects and tax

Margaret Hodge, the Labour MP who chairs the Public Accounts Committee says of some of the companies involved in this work, “They’re milking the PFI system for profit”.

What sparked this remark was the discovery by the Public Accounts Committee (PAC – committee of MPs that oversees government spending) that 91 PFI projects are held in overseas tax havens, including 33 owned by HSBC Infrastructure, an offshoot of the high- street bank (the one that we own), based in Guernsey.

The PAC in its conclusions to its PFI report states:

Tax revenue is being lost through the use of off-shore arrangements by PFI investors and the effect has not been adequately assessed. The Committee is concerned that the Treasury has no plans to address this matter. Some PFI investors reduce their exposure to UK tax through off-shore arrangements. Yet the Treasury assume tax revenue in their cost-benefit analysis of PFI projects. The Treasury could not tell us if PFI investors had paid tax in the UK on profits and on equity gains, or whether corporation taxes had been collected from PFI companies. The Treasury should measure the tax revenues from PFI deals and should ensure that this is taken into account in future assessments of PFI against conventional procurement.

Stella Creasy, a Labour MP on the committee has tabled a series of parliamentary questions about the taxation of PFI firms.

In the replies, departments’ assumes that PFI projects will generate between 4% to 8% or more in tax; so accordingly it increases the estimated cost of the carrying out the project via the public sector (the public sector comparator) by the supposed tax gain.

Of course if the companies don’t pay tax or pay less than assumed then the cost of the public sector comparator has been unfairly inflated and the UK loses out on the tax.

It should be mandatory that companies that work for the public sector actually pay full tax in the UK; this means barring them from using tax havens, overseas subsidiaries or any other measure to avoid doing so.

And while we are on the subject of PFI, Civil Service World provided this riposte to misleading claims in a recent speech by the Deputy PM at the London School of Economics.

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