Judge Backs Local Authority Over £9 Million Private Finance Initiative Funding Gap

Posted: 25th June 2012

A High Court judge has overturned a Government decision which Dudley Metropolitan Borough Council claimed would leave it facing a funding gap of more than £9 million in respect of a Private Finance Initiative (PFI) to provide information technology to the local authority’s schools.
The Council complained at the High Court of a decision taken by the Department for Communities and Local Government in respect of the £51.5 million PFI which was used to cover the cost of the Dudley Grid Learning Scheme in 1999.
The Department informed the Council last year that it would be changing the way in which it calculated grants provided to the Council to service the PFI. The Council argued the change would result in a funding shortfall of more than £9m.
Upholding the Council’s judicial review application, Mr Justice Singh ruled that the Department’s decision was unlawful because the Council was not consulted during the formative stage of the decision-making process.
The PFI was designed to provide the funds required for new information technology facilities in schools throughout the Borough. The cost of the project was due to be paid off long after the 10-year PFI had run its course.
Until last year, the Department's grant to the Council to service the on-going cost of the PFI was paid on a ‘declining balance’ basis.
However, following the election of the coalition Government, the Council was informed that this would be changed to an ‘annuity’ basis.
The Department expressed concern that grants would have to be paid ‘in theory ad infinitum due to the reducing nature of the annual declining balance payments’.
The Council was informed that it was ‘not sustainable to continue with such never ending financial commitments, especially in the current fiscal climate.’
But that decision brought a rapid response from the Council which argued that the proposed change in the way the grant was calculated would leave the Council with a very substantial funding gap.
The Council’s lawyers argued that the Department’s decision was infected by procedural unfairness, having been reached without adequate consultation.
Mr Justice Singh ruled in the Council's favour on that issue and directed that a fresh consultation must be carried out. He said: ‘It is clear from the evidence before the Court that the (Secretary of State) did not consult the (Council) at a formative stage of the decision-making process.’