Taxpayers have spent £89.5 million since 1998 on a Midland incinerator – which has still not been built.

The enormous waste of money has been condemned by a Commons inquiry which described the arrangements as “appalling”.

MPs accused the previous government of signing complex and expensive PFI deals which forced local councils to pay private sector partners millions of pounds even before work was completed. The “waste to energy” facility was due to be built in Kidderminster, Worcestershire, as part of a deal involving Worcestershire and Herefordshire councils and contractor Mercia Waste Management.

A 25-year deal worth approximately £680 million was signed in 1998.

But planning permission for the Kidderminster site was refused. The councils then acquired a new site, at Hartlebury, Worcestesrhire, and at the same time decided they wanted to use a new approach to treating waste known as autoclaving, which uses high-pressure steam to destroy bacteria. However, negotiations with Mercia about introducing autoclaving broke down, because of uncertainty over whether there was a market for the end product.

The councils then returned to the idea of building a waste to energy plant, and using the Hartlebury site for it. But planning permission was not granted until July 2012 and the delay in building the plant meant the project was unable to secure the necessary funding.

The authorities are still pressing ahead with the scheme – but have not yet built the facility. And they have paid out almost £90 million provided by the Department for Environment, Food and Rural Affairs and its predecessor departments in Whitehall.

A National Audit Office report earlier this year explained: “Under the funding agreement, grant payments started as soon as Herefordshire and Worcestershire started to pay their contractor.

“The nature of the contract meant that Herefordshire and Worcestershire started to pay the contractor once the latter began to provide services under the contract, irrespective of whether all of the planned infrastructure had been delivered.

“Therefore, for the first 15 years of the contract up to March 2014, the department and its predecessors paid each of the planned grant payments in full even though the planned energy-from-waste facility had not been built. The department’s payments to Herefordshire and Worcestershire totalled £89.5 million to 31 March 2014.”

The public accounts committee also highlighted a similar scheme in Surrey, where once again a private contractor has received millions of pounds even though nothing has been built.

Committee chair Margaret Hodge said: “It is appalling that lax, poorly drafted PFI funding agreements to support the building of local authority waste processing plants have led to hundreds of millions of pounds worth of grants being made to three councils even though the main waste assets – such as incinerators – have not yet been built.

“Funding agreements with Surrey and with Herefordshire and Worcestershire councils signed by the old Department for Environment, Transport and the Regions, meant central government started paying grants to the local authorities as soon as the contractors began to deliver waste management services rather than waste management assets.

“The supporting PFI contracts signed by the local authorities did not require all of the expected assets to be constructed, resulting in £213.5 million in grants having been paid to the councils over the last 15 years with none of the main waste assets to show for it.”

She added: “The department has more work to do to improve local authorities’ contracting capability, especially for PFI projects, and ensure that they only pay for what is delivered in future without getting locked into long, inflexible contracts. It should act with far greater urgency when it has concerns about a project’s progress and support local authorities to negotiate PFI contracts that are better value for money for local taxpayers.”

A spokeswoman for Worcestershire County Council said: “Herefordshire Council and Worcestershire County Council were pleased to help the National Audit Office with the study.

“The councils met with the National Audit Office in November and December 2013 and were then in regular contact with them for the period of the study and production of the report.”