A public service union has welcomed Labour’s promise to end the use of public finance initiative (PFI) contracts while bringing existing PFI contracts back in-house.

During his speech yesterday at the Labour Party Conference in Brighton, the shadow chancellor John McDonnell insisted a Labour Government would sign ‘no new PFI deals’.

He also said his party would ‘bring existing PFI contracts back in-house’.

Dave Prentis, the chief executive of Unison, welcomed the announcement.

‘It’s good news that Labour plans to tackle the beleaguered private finance initiative,’ he said.

‘Since PFI started, Union warned it would lead to long-term debt problems, a burden the country couldn’t afford to carry.

‘It’s like buying a house on a credit card. Sky-high interest payments mean far less money for patients and children’s education.’

PFI deals are a way of financing large-scale infrastructure projects, such as schools and hospitals, in a way that minimises the short-term impact on the Treasury’s budget.

Under these deals, private investors carry out the necessary building work and then rent back the finished products to the state. This can mean that the tax-payer ends up paying more in the long-term through interest payments.

According to the National Audit Office (NAO), in 2013-14 around £10bn was spent on servicing private finance contracts, with about £4bn of this related to debt and interest.

The Centre for Health and the Public Interest has calculated private companies that have built NHS hospitals using PFI deals have made pre-tax profits of £831m over the past six years.

Speaking in Brighton, Mr McDonnell told the assembled delegates: ‘The scandal of the Private Finance Initiative, launched by John Major, has resulted in huge, long-term costs for tax payers, whilst handing out enormous profits for some companies. Profits which are coming out of the budgets of our public services.’

He said that over the next few decades ‘nearly two hundred billion’ was scheduled to be paid out of public sector budgets to private investors in PFI deals.

Mr McDonnell said a lot of the profits from these deals was going to shareholders - many of whom were based in offshore tax havens.

‘We’ll put an end to this scandal and reduce the cost to the taxpayers,’ he said.

‘How? We have already pledged that there will be no new PFI deals signed by us. But we will go further. I can tell you today, it’s what you’ve been calling for: We’ll bring existing PFI contracts back in-house.’