From PFI ARTICLE IN ISLINGTON GAZETTE THIS WEEK
A private firm registered offshore made at least £9million off Islington Council’s two out-sourced housing deals between 2012 and 2018.
Ronalds Road. A typical Islington Street, where there are a number of Partners for Improvement in Islington homes. Picture: Polly Hancock
John Laing Infrastructure Fund (JLIF) was registered in Guernsey and owned 45 per cent of two Public Private Finance Initiative (PFI) deals between Islington Council and Partners for Improvement in Islington.
The now defunct investment fund company was based on the island where companies generally pay tax at 0pc – and it owned 45pc of both the Islington PFI 1 and PFI 2 contracts, as of 2012.
The council has two concurrent contracts with Partners for Improvement in Islington, outsourcing 6,440 council homes for letting and management.
Partners was owned by a private sector consortium originally comprised of Bank of Scotland, United House Group and Hyde Housing Association, with Rydon Property Maintenance providing repairs and cyclical maintenance.
Contractual accountabilty of Partners for Improvement in Islington. Picture: Dr Brian Potter
But in January 2012, JLIF brought into three PFI contracts from United House for £30.5m, which also gave the firm a 50pc stake in the Partners’ Camden PFI project, pertaining to the redevelopment of the Chalcots Estate. But Partners for Camden filed for insolvency in 2018.
PFI 1 had post-tax profit of £6.8m between 2009 and 2018 and paid dividends of £6.6m.
Over the same period, PFI 2 created post-tax profits of £23.3m and paid dividends of £14.9m.
Dexter Whitfield – a specialist in PFI schemes at the European Services Strategy Unit and an associate professor at Flinders University in Australia – calculates that between 2012 and March 2018 £9.56m was paid in dividends to JLIF in Guernsey, with the remaining £11m going to UK-based shareholders.
Stock image of shadow foreign secretary Emily Thornberry. Picture: PA Images / Kirsty O’Connor
Shadow foreign secretary Emily Thornberry told the Gazette: “Unfortunately, our borough is still paying the price for the period when the Lib Dems were in charge of the council, doing all sorts of bad deals with private contractors and investors.
“It may be impossible to unwind these particular PFI deals, but it is not right that taxpayers’ money is ending up in offshore tax havens. The way we deal with that is by electing a Labour government which will get serious about cracking down on those tax havens, and ensuring that companies making profits in this country are paying tax in this country.”
Between 2012 and 2018, JLIF which invested in 65 PFI and Public Private Partnership schemes around the world, had pre-tax profits of £526.1m but paid only paid £2.1m (or 0.4pc) in UK tax. Academic and housing campaigner Stuart Hodkinson, whose 2019 work Safe As Houses scrutinies the “corporate greed” of PFI schemes, estimates the total contract value of PFI 1 is £357m, while PFI 2 is said to be worth £421.3m.
Dr Brian Potter, chair of Islington Leaseholders Association, led a campaign to stop the PFI deals in the early 2000s. He argues offshore or tax haven registered companies profiting from PFI deals, while not illegal, is “unethical” and “insidious”. He said: “This is one of the major problems with selling off contacts. Once you have sold the contract you have no control, so there is no quality control – nobody accepts responsibility for anything wrong with the original contract. You’re just left with a money spinning machine just eating money over the years. It was the worst council financing decision.”
Islington expects to pay Partners £44million this year, £44.9m in 2020-2021 and £45.9m in 2021-22.
Both Islington PFIs pay UK corporation tax on their profits before dividends are paid out. PFI 1 and PFI 2 paid a combined £7.4m in tax on their profits between 2012 and 2018. But if a shareholder is a company it doesn’t pay tax again on its dividend income, which is then paid out again in kind to its immediate parent company and the money gradually moves offshore, in this instance to Guernsey.
PFI 1 covered 2,340 homes in Highbury, Mildmay and Canonbury – it started in 2003 and is a 30 year contract. PFI 2, a 16 year deal, covers 4,100 homes across the borough and runs out in three years. Following Shadow chancellor exchequer John McDonnell’s threat to nationalise PFI and PPP schemes under a Labour Government in 2017 – JLIF shares plummeted, and it was bought by Dalmore Capital Ltd and Equinox for £1.45bn and renamed the fund Jura Holdings Ltd. Equinox is owned by Tetragon Financial Group, registered in Guernsey. But the latest Labour Party Manifesto has softened its stance on nationalisation of PFI – it says “taking back all PFI contracts over time”; which could mean doing nothing and letting contracts conclude and local authorities and NHS trusts takeover responsibility.
The Gazette was unable to get a comment from JLIF as it no longer exists. Its previous parent company John Laing PLC said it was a separately listed fund and had its own board and chairman.
Partners declined to comment.
‘End the PFI rip off’
Islington’s housing chief Cllr Diarmaid Ward said the council was best placed to comment on this story, but it was unable to do so because of pre-election rules.
But last year Cllr Ward told the Gazette: “We have looked into it [the early termination of the PFI contracts] many times over the years. But it would be really prohibitively expensive to end the contracts early. It would costs millions and millions and it would not be a good deal for residents of Islington. Given that one contract is ending in 2022, we’d rather start making preparations now.”
Cllr Ward has previously said the council’s “default position” is to bring the services back in-house, subject to consultation with residents.
Islington North veteran Jeremy Corbyn said at the time: “People in Islington contact me regularly about their problems with Partners, which come from the poor contracts the previous Liberal Democrat administration made the grave mistake of signing.
“Unfortunately, until we have a Labour government committed to nationalising existing PFI schemes, the earliest we can terminate the first of these contracts without excessive cost is 2022. Labour will end the PFI rip off and bring services back under public control.”