3.14 Although the total costs of the projects have risen significantly, the PFI structures mean the public sector is currently expected to pay 1% more in total for both hospitals than it would have under the PFI schemes. The expected cost to the public sector of the Midland Metropolitan hospital project has risen by 3% (from £686 million to £709 million, see Figure 8). The expected cost to the public sector of the Royal Liverpool hospital has fallen by 1% (from £746 million to £739 million, see Figure 11).
3.15 This is because the private sector shareholders, investors, insurers and Carillion have borne estimated losses of at least £603 million on the construction of both projects. This estimate is based on incomplete information about the extent of losses. Some Carillion subcontractors have also incurred losses.
3.16 The new arrangements require more of the public sector costs to be paid upfront than under the PFIs, which spread the costs over the course of the contract (Figures 8 and 11). Although the real-terms cost across both hospitals has increased by 1%, when the cashflows are discounted to take account of these timing differences, using the government's preferred social time preference rate of 3.5% in real terms, the net present cost to the taxpayer would be considered to have increased by 15%.13
3.17 The public sector's costs are higher than they otherwise would be because the Sandwell Trust and HM Treasury had paid £68 million and the Liverpool Trust £121 million into the PFI projects.14 This is considerably more than was usual for PFI and was to reduce the amount of private finance needed and make the projects more affordable. It has however reduced the investors' losses accordingly.
3.18 As explained in Parts One and Two, there are risks that the cost to the public sector may rise further once the full cost of completing the Royal Liverpool is known (paragraphs 1.19, 2.26 and 2.38).
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13 We set out how different discount rates can be used and how these affect the present values in our report on PFI and PF2 (Comptroller and Auditor General, PFI and PF2, Session 2017-2019 HC 718, National Audit Office, January 2018), paragraphs 1.27 to 1.30. The social time preference rate is intended to reflect the value society attaches to present, as opposed to future, consumption and is set by HM Treasury at 3.5% in real terms.
14 These numbers have been adjusted for inflation to put them in 2018-19 terms. This means they increase compared with numbers reported in the Trusts' accounts. The Midland Metropolitan figure also includes the contribution from IUK Investments Ltd (paragraph 1.4).