The Private Finance Initiative was always bonkers. The idea was that, instead of the government borrowing to build infrastructural projects, they would hand the job over to a private consortium to raise the money.

This was always daft. The government was always the safest borrower in town. When did you last hear of a government going bust? Because its loans are completely safe, the government can borrow at a cheaper rate than anyone else.

So what is the justification for getting the private sector to stump up the money? The answer New Labour gave was that they were taking on the risk. What risk is there in building a hospital or a school, we wonder? Now we know the answer.

The private consortium would usually borrow the money from a bank. But, if you haven’t heard, the banks are in trouble. They are not lending out money like they used to. It’s called the credit crunch. Not only that. They’re in such dire straits that the government is bunging huge sums of money – our money – at them.

Before July 2007 there were about 80 banks ready to lend for PFI projects. Now there are only 12. Nick Mathieson, writing in the Observer (01.02.09) spells out the consequences. First he quotes Margie Jaffe from UNISON. “It seems to me that it’s time to knock PFI on the head...Given what it costs the government to borrow money compared with the private sector, it’s mad.”

Mathieson continues, “Critics believe the ‘madness’ has been compounded by the bail-outs of Royal Bank of Scotland and HBOS. Both banks, in which the government has large shareholdings, are big lenders to PFI projects. So the government is in the position of bailing out banks that are charging it to supply debt for public amenities.”

Got it? We give the banks money. Then they give it to the PFI projects. The banks wouldn’t have the money to dish out if we hadn’t given it to them first. The PFI consortia gratefully take the money and build the projects.

When the project is finished we give the PFI people their money back – plus vast profits. In an associated article in the same issue of the Observer Allyson Pollock notes, “Evidence released under Freedom of Information in Scotland shows shareholder profits above 3,000% in some cases.”

So when the money has gone round and round, the PFI firms can pay the banks back. But we effectively own the banks! We finally get our money back, minus what has stuck to the fingers of the banks and the PFI consortia. PFI is a stinking scam.