UK taxpayers paying billions more for privately funded projects: watchdog

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LONDON (Reuters) - British taxpayers are spending billions of pounds more on hospitals and schools funded by private companies, a parliamentary watchdog said on Thursday, amid fresh concerns about whether companies should be given the work.

The collapse of Carillion this week, one of the biggest beneficiaries of such contracts, forced the government to step in to guarantee services ranging from school meals to roadworks that the company had previously provided.

The report, by the National Audit Office (NAO), said relying on privately financing public projects is typically more expensive than using taxpayers' money.

A group of schools typically cost 40 percent more to build and a hospital 70 percent more than if they were financed by government borrowing, the report said.

The GMB union said the findings showed that the use of private financing was a "catastrophic waste of taxpayers' money" and the projects were "financial time bombs".

Launched by the ruling Conservative party in 1992, the Private Finance Initiative (PFI) has proved popular with successive governments because it enabled the state to fund new public infrastructure without the government having to raise the money up front.

Opposition Labour party leader Jeremy Corbyn said that such work should never have been given to the private sector in the first place.

"The report will inevitably fan the flames of the Labour Party's (and increasingly some Conservative MPs') criticism of PFI," Jefferies analyst Matthew Hose wrote in a note to clients.

Labour has vowed to nationalise these private sector contracts as part of plans to roll back private sector involvement in public services.

There are currently over 700 private finance contracts in existence worth about 60 billion pounds. The annual cost of these projects was worth more than 10 billion pounds last year.

Even if no new deals were agreed, the cost of these projects would reach 199 billion pounds by the 2040s, the report says.

"Decisions that have an impact on taxpayer-funded public services for decades need to be thought through," said Meg Hillier, Chair of the Committee of Public Accounts. "There are lessons to be learnt and these need to be considered in the context of 20 years, not just expediency today."

(Reporting By Andrew MacAskill and Simon Jessop; editing by Stephen Addison)