Tax cash to go up chimneys for waste disposal

TWO cash-strapped local councils are to spend an estimated £400m of taxpayers’ money funding high-interest bank loans to support the construction of a controversial waste incinerator in North Yorkshire using the now-discredited PFI funding system.

Documents seen by the Yorkshire Post indicate the amount likely to be paid out by North Yorkshire and York councils to cover the debt financing costs of a huge new incinerator at Knaresborough and the associated 25-year waste contract will run into hundreds of millions of pounds, due to loans taken out by their private contractor at interest rates several times higher than those available to the public sector.

Local opposition to the plan to build the incinerator at Allerton Park is already strong – where millions of tonnes of household rubbish from each corner of England’s largest county will be burned over the next 25 years.

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Last month, residents attended the latest in a series of angry public meetings in North Yorkshire to register their opposition to the scheme, which is due to go before a planning committee early next year. Almost 10,000 people have now signed a protest petition, and local MPs have called on Communities Secretary Eric Pickles to step in before the scheme gets the green light.

Today the Yorkshire Post can reveal the likely scale of the debt financing costs which will fall on North Yorkshire and York taxpayers for the next quarter of a century, due to the complex way the scheme is to be funded.

The £1.45bn waste contract which the councils are set to sign with contractor AmeyCespa is to be paid for via the Private Finance Initiative (PFI), a controversial funding method which the Treasury accepts is in need of reform.

Under PFI, all the money for a public works scheme is borrowed by the private contractor involved, rather than by the public body which will use the facility. keeping the debt conveniently off public spending balance sheets, but ultimately costing taxpayerd far more as it is repaid in annual instalments.

The issue is particularly prescient in the current economic climate, with the borrowing rates available to the UK Government having recently fallen to their lowest level since the days of Queen Victoria – just 2.13 per cent.

The Government’s own public loans works board, which lends money to local councils, currently offers 25-year loans at rates of between 3.5 and four per cent.

But documents released by the county council reveal the vast sums set to be borrowed by AmeyCespa under the PFI waste deal will be paid back at rates far above these levels – with local taxpayers ultimately footing the bill.

“These big PFI deals are wasteful and they are hugely expensive,” said Grimsby MP Austin Mitchell, who sits on the Public Accounts Committee. “By their very nature they cost taxpayers more.

“All these projects should be reviewed, and if it’s cheaper to do it through public spending then that is what should happen.”

The documents show that when the two councils drew up their first PFI business case for the project back in 2006, they assumed the interest rate payable would be around 6.8 per cent - already far higher than if the authorities were to borrow the money themselves.

Since then, the documents state, the actual price of the debt has “considerably increased” from this assumed level due to the ongoing credit crunch.

The actual cost of the expensive new financing has been withheld from the documents for “commercial reasons”.

But one table of figures shows debt financing now makes up more than 28 per cent of the total cost of the scheme – potentially topping £400m.

Bassetlaw MP John Mann, who sits on the Treasury select committee, which heavily criticised PFI in a hard-hitting report earlier this year, said: “This cannot be the cheapest way of doing this.

“These deals are supposed to transfer risk away from the public sector, but it is a false premise. If anything the public sector ends up taking on greater risk with PFI.”

• More on this story in Saturday’s Yorkshire Post