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Call to cut PFI interest rates

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Banks bailed out by the government charge unjustifiably high interest rates for private finance initiative projects, an academic study has claimed.

With Lloyds Banking Group and the Royal Bank of Scotland (RBS) both partly government-owned, an opportunity to negotiate better rates is being missed, University of Edinburgh academics said.

The Edinburgh study analysed 149 major PFI hospital projects signed by the NHS so far and found that RBS and Lloyds had provided senior debt - the element of borrowing with the lowest interest - to 38 projects and had equity in 16.

These projects have raised £12.27bn under PFI but over the next 30 to 60 years the researchers calculated the public sector will pay around £41bn for the cost of capital alone.

Report author prof Allyson Pollock, from the university’s Centre for International Public Health Policy, said: “Instead of using the opportunity of the taxpayer bail-out to reopen the contracts and negotiate better rates in favour of the public sector, the UK government is allowing the banks to restore their balance sheet by charging relatively high rates of interest for PFI schemes.

“The increased costs of servicing the debt are met from annual budgets of the NHS, and result in reductions in the money available for services.”

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