This article we are publishing below deals with the scandalous so-called "Private Finance Initiative" in Britain. This process allows private companies to be involved in the building and running of what were formerly public services, such as hospitals, railways, and even schools. The idea is that private companies, in "partnership" with the government (both national and local) provide these services. The state provides part of the money and the rest is paid by the private company. This is supposed to be "cheaper". This model is being adopted internationally, and Britain has been in the vanguard of this process. Mick Brooks shows how in reality PFI has actually increased the cost of running public services, while at the same time providing a worse service than when they were run by the state, and has added an increased burden on public sector workers and allowed private contractors to attack their pay and conditions. Mick Brooks shows quite clearly that the only people to benefit from PFI have been the fat cat capitalists who run the private firms.
What is the Private Finance Initiative (sometimes called PPP, public private partnership)? It started life in the dying years of the last Tory government. They knew they would soon be out on their ears. One of their think tanks dreamed up PFI as a crazy scam (like rail privatisation) – with the aim of nicking [stealing] all the remaining public assets that weren’t actually nailed to the floor. It has been enthusiastically embraced by "new" Labour apparatchiks to show us their "new" (pro-capitalist) credentials. By the time of the next election, £40 billion in public projects will be being done the PFI way.
Free money?
Originally PFI was floated as a way of getting round Treasury limits on government borrowing. The Tories were showing all the fiscal probity of a drunken sailor. Public debt was ballooning out of control. Private Finance Initiative, as a description of what happens, is actually a complete lie. It suggests that private business generously helps the rest of us out by giving us money. PFI doesn’t save us a penny – as before we pay for public services, and under PFI we pay plenty.
What used to happen was this: if the government decided we needed a new hospital, they paid building contractors to build it and it then became a public asset. The state owned it. We then paid workers through our taxes to run the public service. Under PFI we pay a consortium to build a hospital – and they own it. We pay them more money – and they employ the workers to provide the health care.
What’s the point of this? It is argued that private companies can borrow from the financial markets. But it’s us who pay the interest when we pay them to run the hospital. The public sector could always borrow the money – if the Treasury would let it.
What does PFI do for capitalism? Before, capitalism couldn’t run and make money out of universal health care. The people you are looking after are always sick, but not always rich. Capitalism was incapable of providing universal health care – or education, or social services, or the infrastructure private capitalists need. That’s why the National Health Service had to be set up. But now health care – and many other services formerly provided by the public sector, and still paid for by us the taxpayers – has become a zone of capital accumulation, a business sector for making millions – and millionaires. This is not about capitalism developing the productive forces. Capitalism has proved unable to set these services up. Once the state has set them up on the bosses’ behalf, they can use PFI to muscle in and make money by taking them over.
The HP man cometh
Readers may have come across this sort of arrangement before. It’s called hire purchase, or HP for short. You can either buy a television – in which case you own it. Or you can hire it from a rental company. In that case they can take it away if you fall behind on the payments. Most readers have done the sums. You can pay for the TV many times over on HP and you still don’t own it. The only justification for renting is that you’re too poor to pay up front. Being poor is very expensive.
Under PFI the government says they won’t let the government (that’s them!) borrow the money to provide publicly owned assets – we’ll have to rent. It is a scam to get round artificial restrictions on public sector borrowing. But a debt is still a debt, even if it’s "off balance sheet". Only a fool would go and borrow from the loan sharks so they could say they had paid off the banks. A loan is a loan in the real world whether an arm of government or a private consortium borrows to build a hospital.
Private borrowing is dearer
But there is one important disadvantage of going private. It costs more. Lending money is analysed by financial economists as a trade off between risk and return. If you are lending to a fly-by-night outfit which might well do a runner with your money you are likely to charge a higher rate of interest, called a risk premium. The government is not a fly-by-night outfit. It never defaults. There is no risk, therefore there is no risk-premium. Lending to the state is safe, so the state can insist on a lower interest rate on its loans. If the public sector borrowed directly this would save us all £50 million for every £1 billion of PFI contracts.
We’ve got the money
The government doesn’t have to go to big business. Public finances have strengthened over the past five years. Treasury supremo Gordon Brown has got money coming out of his ears. Carl Emmerson of the Institute of Fiscal Studies explains: "There’s no need to fund these projects from the private sector per se – the fiscal rules are not a constraint on investment." The pressure group Catalyst estimates that "the current account surpluses [in public expenditure] of recent years (£23 billion for 2000-01 alone) could have covered the £14 billion of PFI capital investment deals between 1997 and 2001. Since the Treasury could have funded considerably more capital investment without borrowing a penny, the present generation of taxpayers could have funded new infrastructure for both the present and future generations instead of shifting the burden of interest payments onto future generations." We had the money. We could have owned the assets outright. Brown demanded we borrow and pay back for a generation for assets we don’t own.
"The private sector is more efficient"
So if the state doesn’t need to borrow, why call in the private sector? The justification is in the Thatcherite mantra, "public sector bad, private sector good". Capitalism, we are told, unleashes extraordinary dynamism and buccaneering entrepreneurialism unknown to the dull folk who work in the public sector doing non-"wealth-creating" jobs such as teaching, fire-fighting or nursing. This theory radiates contempt, thinly-disguised contempt, for those who choose to work serving the public in preference to amassing fortunes. Private is more efficient! Private provision cuts costs! We look in detail at this argument later – but basically it’s just not true.
"There is no alternative"
For the new Labour government, PFI is "the only show in town". Health Minister Alan Milburn told health service administrators: "It’s PFI or bust." What this means is NHS Trust managers have been told that they can have a project financed by PFI, or they will not have it at all. Then they have to justify the project in terms of the savings PFI will bring. Any health manager anxious to modernise our crumbling Victorian infrastructure will be prepared to concoct that justification, if that is what it takes to get money on the table. Along with the PFI costing they have to come up with a Public Sector Comparator (an assessment of how much they’ve saved by going private). So they do. But the Public Sector Comparator is, like the adventures of Harry Potter, a work of fiction. The point here is the PSC is then waved in our faces by various apologists for PFI to show how much money they’re saving us. Jeremy Colman, deputy controller and auditor-general at the National Audit office explains: "People have to prove value for money to get a PFI deal. But because that is wrongly seen to be demonstrated by the PSC, it becomes everything. If the answer comes out wrong you don’t get your project. So the answer doesn’t come out wrong very often." (Financial Times, June 5, 2002)
How to lie with figures
How do managers fiddle the PSC so they can get their hands on the PFI money? PFI contracts are typically set for thirty years. The PFI project and its public sector shadow are assessed in today’s money. Presumably a pound spent in twenty-nine years’ time won’t be worth as much as a pound spent tomorrow, because of inflation. So we discount the money to be spent in the future against the likely rate of inflation. The trouble is, nobody has the foggiest idea what the rate of inflation is likely to be in thirty years’ time. So one way of doing the scam is to make the rate of discount up. Even the most mathematically challenged reader (like me) can work out that by manipulating the discount rate by a fraction of a percent the managers can come up with the result they want to show – a PSC that "proves" public provision would be dearer.
Another scam is to factor in a risk premium (which really doesn’t exist). Glasgow schools added £70 million risk to a PFI scheme to cover up the fact that it was actually £35 million dearer than in-house provision. After all, what is the financial risk in running a school? The Treasury pitches in to tilt the playing field in favour of private capitalists by letting them claim 17.5% VAT back, while the public sector has no tax relief on its projects. Hospitals have to pay a 6% capital charge to the Treasury (who does that benefit, for heaven’s sake?), but PFI operators are exempt. And so on. No wonder Jeremy Colman denounces these accounting practices as either "pseudo-scientific mumbo jumbo" or "utter rubbish".
Granting them a monopoly
Why is capitalism supposed to be efficient? Because of competition between capitalists. They all try to cut costs and the weakest go to the wall. That’s the theory. But it doesn’t work in the case of PFI. The PFI process effectively awards a monopoly position to the contractor. There is no incentive to cut costs – and every motive and opportunity to milk the public sector (that’s you and me – the taxpayer) – as we shall see.
The firms who tender for the PFI projects are few in number. Balfour Beatty (responsible for rail replacement at the scene of the Hatfield rail disaster) is one. Jarvis, who were in charge of track maintenance at the other fatal railway accident at Potters Bar is another. Tarmac/Carillion, Serco, Laing and Group 4C are also involved in construction work, while Arthur Andersen are always on hand to offer their expertise in fiddles. Usually a combination of this select band forms a consortium and puts in a bid. You might think the public sector body accepts the lowest bid and they get on with the work. Not a bit of it.
The bidding process – we pay
The consortium selected becomes a "preferred bidder", and the real negotiations begin. While the private sector consortium cuts all their quoted prices to become preferred bidder, as soon as they’ve got their foot in the door, it’s a licence to print money. Building companies reckon on a margin of 4%, but for PFI the mark-up is 10%. That’s just for starters. Costs are ruthlessly padded. PFI contracts, such as the one for tube renovation, can run to thousands of pages.
Radical journalist George Monbiot is the sort of bloke who gets anonymous tip-offs from insiders. His source declares: "I am not aware of a single instance where a preferred bidder has been deselected…Without decent public sector advisers," the opportunities for fraud "are enormous".
The bidding process can go on for years, involving an army of advisers, "experts" and general hangers-on. This in itself costs a lot of money. Fortunately for the company, we pay all this. In the case of the London Underground PFI we taxpayers have lashed out £300 million in consultancy fees to various scroungers. Isn’t that nice of us? 15 PFI hospital contracts has seen another £45 million syphoned out of our pockets and into those of "advisers".
The bidding process – they cheat
Once they have acquired the preferred bidder status, and all the time and effort that would be lost in unravelling the contract is hanging over the head of the public sector body that wants the work done, the consortium is in a strong position to renegotiate. For renegotiate, read "blackmail". Here’s an example from Australia: "In 1995 the South Australian Government signed an agreement with Healthscope Ltd to manage the Modbury Public Hospital for a period of 10 years. In 1997 Healthscope Ltd alleged that the contract price was insufficient to enable it to support the long term completion of the contract. Following this allegation the contract was substantially amended…It was estimated that the renegotiated contract reversed losses for the company of around AU $2 million in 1996-7." (From the Catalyst report on PFI.)
What was the State Government supposed to do? They needed a hospital in Modbury. If Healthscope had pulled out in a huff, could they have replaced all the staff overnight? Healthscope had them by the short and curlies. Suing Healthscope for breach of contract wouldn’t have done anything for the ill and injured of Modbury. And get this. If the private sector company walks off the job, the British Treasury is recommending that they should be compensated – for the money they have put into the project up to that point! Usually under the law, a party in breach of contract has to pay us. Under Treasury rules, we pay them.
Couldn’t happen in Britain? Actually, it already has. In 1998 the Lord Chancellor’s Department signed a deal with computer firm ICL for a project called Libra to computerise case files and transfer them electronically between the 400 magistrates’ courts. The deal was worth £183 million over eight years. Two years later the company, now taken over by Fujitsu, was back. They now wanted £319 million over 12 years. They got it. Libra doesn’t work. In 2002 magistrates’ courts are still in chaos trying to use 1970s technology to transfer case files from court to court.
And they get away scot-free
What happens to the private sector when it screws up our services? Not much. Andersen Consulting (yes, them again) made a complete mess of the computerisation of National Insurance records, causing a good deal of grief to hundreds of thousands of claimants and pensioners. These were the people that took the real "risk". The bill came to £53 million. Since the Contributions Agency files are linked to the Inland Revenue, the taxman also lost untold billions as 5.2 million personal records went AWOL. Dawn Primarola, the Treasury Minister, only got Andersen to pay £4.1 million "for fear of jeopardising future relationships". It seems that companies with a proven record of expensive failure will still be in the frame for another go at PFI in the future. And it seems Treasury officials, so "prudent" when it comes to spending money on public services, have an easy-come-easy-go attitude to dishing out our money to private business.
The risk-lovers
Another argument in favour of PFI is that the private sector is prepared to take more risk. According to this legend most of us are "risk averse" – that is, we don’t like betting all the time, even if the bet is fair. We prefer to know exactly where we stand. Public services exist on the basis that we know they will always be there. An obvious example is the air traffic control system – it doesn’t bear thinking about what would happen without it. So when NATS was privatised last year, the new owners should have taken over all the risk. But they knew the government couldn’t let them go belly up. So when things got hairy, they came back for a handout. They got it. Seven months after privatisation they’ve already got their hands in our pockets!
Fortunately, we are told, human genes are seeded with a minority of risk-loving people. These are the entrepreneurs. They are responsible for all innovation. To them all blessings should flow. That’s not how it looks from where we stand. The only risk-loving people out there are the taxpayers. We just love picking up other people’s gambling debts and paying them. And when entrepreneurs win the jackpot – why, that’s a reward for all the risk they’ve taken! Siemens Business Services made a hash of the Passport Agency computerisation. Think of the queues, the panic and inconvenience! The failure cost £12.6 million, but SBS paid just £2.45 million back. Meanwhile a passport costs each British citizen £7 more because of the fiasco. We are shouldering the risk. Under PFI the private sector reaps the profits while we pay for the losses.
Refinancing
Proof positive that we don’t share risk with big business is the phenomenon known as "refinancing". Having landed a PFI contract, the consortium goes to the banks to cash in their winnings. We pay them more to borrow because financial markets might regard what they’re doing as a bit risky, since they’re supposed to be out there in the dog-eat-dog world of capitalist competition. The consortium explains to the bank that that is not so. Society is always going to need a hospital in Dartford (or wherever). If their deal falls through the government will have to "nationalise" the losses. It’s as safe as houses. So why don’t we renegotiate the loan on a lower rate of interest to make allowances for the fact that the bank’s risks are covered – by us, the taxpayers? The consortium then trousers the windfall.
Carillion and the others who clinched the PFI deal for Dartford and Gravesham walked off with £20 million of our money. A parliamentary question revealed that only 15 out of 82 PFI projects had claw-back arrangements in case of successful refinancing. This lack could have cost us all up to a billion pounds. The Treasury, the profiteers’ friend, defends this deal. In their paper "Standardisation of PFI contracts" they argue that windfall profits are for business to keep.
Who are the experts?
Another argument why we are told we have to bring in the private sector is because "they have the expertise". What expertise did Balfour Beatty show at Hatfield? They were not replacing cracked rails fast enough. That was definitely one factor in the fatal train crash there. The fact is they didn’t know what they were doing. They had no history of track maintenance before rail privatisation. No private company did. The only way they developed any expertise was by hiring sacked railway maintenance workers from British Rail on worse terms and conditions and picking their brains. (Ken Loach’s excellent film "The Navigators" shows the human side of the process.)
The firms in charge of track maintenance do indeed strive to cut costs. But it’s not to compete with their rivals. They don’t have any. It’s to increase their profits, overwhelmingly at the expense of the wages bill. The News of the World reported that Carillion subsidiary GT Rail Maintenance sent out this memo at the time of the disaster: "We are currently being inundated with defects of this kind…however it is not practical or cost-effective to cut all of them out of the track immediately when some of them can afford to wait until they are re-tested." It’s the passengers who are taking the risk here, not the private contractors!
Any firm we hire to upgrade the tube is embarking on something completely novel. Anyone who has used the London underground will realise that nobody living has any expertise in renovating the tube. There is no evidence of any modernisation since the death of Queen Victoria. And as for running hospitals, the public sector has a monopoly of this knowledge. It is true we already have some private hospitals. Some of the expensive London hospitals are little more than drying out clinics for Arab sheikhs. You really wouldn’t want to have a road accident or a heart attack outside one of these places – not that they’d let you in. Private hospitals just don’t do Accident and Emergency. In fact they dumped 142,000 patients on to public sector casualty departments last year, which was actually probably the best thing that could have happened to the patients.
Watch out for those accountancy massage parlours
Even loyal Labour MPs are getting fed up of PFI. David Taylor, MP for North West Leicestershire and an accountant, declared in the House of Commons: "Every penny raised for PFI schools, hospitals and prisons…is paid for by the public purse, plus interest, plus profits…PFI does not lever in private finance. It merely allows private shareholders to dip their large ladles into an increasing stream of tax revenue." He went on to denounce "the seedy accountancy massage parlours" that try to make the deals look like value for money. Arthur Andersen, the accountants last seen enthusiastically shredding evidence at Enron headquarters are masters of the black art of PFI finance. In debate Kelvin Hopkins (Luton North) made the point: "PFI is irrational nonsense and is also extremely unpopular with the public." UNISON reckons that only 13% of the voters support this programme of looting the public sector – less than the poll tax when it was introduced.
London Underground
This is the biggest PFI project so far, worth £10 billion. That sounds like a lot of money the tube is getting – but the European Investment Bank has actually offered to stump up half that sum at prime rates. So London doesn’t need to go down the PFI road. The government scheme replicates the insane separation of track and wheels that was a feature of rail privatisation – and the subsequent fatal accidents. Different firms are responsible for track maintenance and train operating. In fact the proposed system is even more fragmented than the railways. As for private sector "efficiency", targets 5% below current service levels have been set for the consortia to give them a better chance. The tube is to get a £1 billion subsidy every year for the next seven years. Again, this is just like what the Tories got up to when they doubled rail subsidies for the benefit of the new private owners. If Labour had committed itself to providing a like sum to the publicly-owned underground from when they were elected in 1997 a lot of the problems on the tube would have been sorted out by now.
Will Hutton outlined some of the accounting dodges in an article in the Observer, going through the government costing to justify PFI. They introduce the concept of a "reputational externality". This form of words means that the public sector stinks while anything private smells of roses. Therefore it will cost more to borrow money. This is the reverse of the truth, as we have seen. Steve Robson of the Treasury was quite frank and up front when he told the City PFI was "the goose that laid the golden eggs". This "reputational externality" is said to be worth £700 million. This is the accountancy of fairyland. The document then plucks the sum of £1.170 billion out of the air as improvement because of "performance adjustment" – because the private companies are bound to do better than the present lot. Then they add £1.576 billion because neoclassical economists believe the public sector is incapable of learning. Think of a figure and multiply it by a billion! You’ve got the idea – now you can get a job as a British government economic adviser.
It is clear that the PFI programmes for the tube is a vast fraud on Londoners. So far from getting "free money", we are to be taken to the cleaners. The consortia will be sandbagged behind thirty year contracts and free from penalties or takeovers however badly they screw up. If the scheme goes ahead, the tube will see no new rolling stock till 2008 at the earliest. Meanwhile developers are licking their lips at the prospect of building Sock Shops on every platform where we can spend our money while we wait longer and longer for the trains
Hospitals held to ransom
In June 2000 Tony Blair opened the first hospital in Britain built with the aid of the PFI in Carlisle. This is what happened next. Two ceilings fell down. You see, the builders were trying to save money. One collapse nearly hit patients in the maternity ward. The sewerage system couldn’t cope. Brown sticky stuff invaded the operating theatre. They had to run out and order new trolleys because the architects hadn’t left enough space between beds. This is not the architects’ fault. As one explains: "The main difficulty for the architect is that we are kept away from hospital workers. That doesn’t serve the best interests of design, and that’s why mistakes happen." The architects’ brief is to save money. They did save the PFI consortium money. But they’re costing the health authority plenty.
The transparent roof means on hot days the sick are faced with temperature indoors of 33 degrees Celsius. Windows have been blown out of their frames, showering doctors and nurses with glass. Like most other PFI hospitals, Carlisle has less beds than the old building it replaced. In fact the health authority was faced with a bed shortage – in August! Why so few? Because it’s cheaper, of course. But why should the number of hospital beds in the country be the decision of a handful of secretive profit-driven building firms rather than of an elected and accountable government?
We have had PFI-type schemes in hospitals for years. We know they don’t work. The Tories under Thatcher forced hospital cleaning to go private. Four out of five of our dirtiest hospitals are cleaned (or not) under the "dynamism of private enterprise". Alan Milburn has admitted this – so why doesn’t he put cleaning back in-house?
With PFI, cock-ups are the norm. £177 million was spent on the "state of the art" Dartford and Gravesham hospital. Almost as soon as it was opened, all routine surgery had to be cancelled because doctors couldn’t scrub up as taps ran at a trickle, and there was no functioning sterilising equipment. PFI hospitals have less beds. The Royal Edinburgh Infirmary lost 20-25% of its capacity. Capital costs are ratcheted up. Dartford and Gravesend’s capital costs went from 7.5% of income to 27.2% as a result of the PFI project. Admin costs have also risen. Traditionally the NHS was cheap to run. Under PFI, health managers reproduce like sex-mad rabbits. The proportion of nurses and other frontline staff to administrators inevitably goes down.
A piece of legerdemain practised by the people who gave us the Royal Edinburgh Infirmary was to close down a city centre hospital in favour of a new one built on a greenfield site. The Edinburgh PFI project was basically treated as a property deal. The consortium paid only £12 million for the prime land before flogging it off to a subsidiary. They made (and taxpayers lost) £60 million on the land deal.
Cost over-runs as well as incompetence are standard. University College Hospital went from £115 to £404 million, Greenwich from £35 to £93 million. The GMB trade union reckons that the cost of 14 PFI hospitals has gone from £766 million to £1.3 billion.
The package as a whole, paid for over thirty years can work out even dearer. The British Medical Association (the doctors’ organisation) has worked out that instead of paying £180 million up front for the Royal Edinburgh Infirmary, we will cough up £30 million per annum every year for thirty years. So the project is paid for in six years. For the next 24 years the consortium just sits back and watches the money roll in. Complete estimates as to what taxpayers will pay in the end depend on projections as to the discount rate. Some assessments suggest we could end up paying £1,068 million for the £67 million Carlisle hospital over thirty years!
It’s not just money
There are other costs involved in PFI. Advocates of PFI say the private sector is more efficient. How can a firm pay shareholders dividends and still provide a cheaper service than publicly-owned non-profit provision? As the reader knows, they don’t – they lie to get their hands on the money. It’s not as if you can increase productivity as easily as in manufacturing by bringing in new machinery. Many of the activities dealt with in PFI projects, such as nursing and running prisons, are labour intensive and "no-tech". In fact the conventional notion of productivity is meaningless. Productivity is conventionally assessed by measuring (as few as possible) inputs against (as many as possible) outputs. Applying this methodology to the private sector causes the Treasury to come up with mind-bogglingly stupid results. British hospitals are more productive than others because they are short of staff (fewer inputs). So hospital waiting lists show we lead the world! Britain has less teacher inputs than other countries. So big class sizes show our teachers are more productive than teachers in other countries!
TUPE
But the institutional stupidity of the Treasury gives us a clue as to how private firms strive to be "more efficient". They aim to cut costs. Since the services they provide are labour intensive, they aim to cut labour costs. Many of the costs of PFI, like the debts they run up, are "off-balance sheet". The real costs are born by the workforce.
One of the few areas where research has shown cost savings for PFI is for private prisons. Here the entire "saving" is because of wage-cutting. Prison officers on £20,000 a year are sacked and replaced by privately employed workers on less than £14,000.
When workers are transferred to the private sector, the first thing the capitalists try is to do a Maxwell on their pensions. [Reference is to the late media tycoon Robert Maxwell who stole millions of pounds from the Mirror Group pension fund.] Tearing up seniority, holiday entitlements and just cutting pay are also top of their agenda. The government, no doubt, would regard robbing the workers as an "efficiency saving". There are rules (the Transfer of Undertakings [Protection of Earnings] Regulations – known as TUPE) which try to provide a minimum of protection for workers forcibly transferred into the private sector. There is an argument at this very moment as to how extensive they should be. Obviously the trade unions should campaign for the TUPE rules to provide as full protection as possible. But workers cannot just rely on the law to protect them from the employers’ offensive.
The reason is – there is no other conceivable way a private company can save money in a typical no-tech service such as the prison service unless they cut workers’ wages and benefits, or the number of workers on the payroll, or both. Take the example of the Hillingdon Hospital workers, a group of mainly Asian women, whose jobs were privatised. Their new employers announced sweeping across-the-board wage cuts. They struck and were dismissed. The workers fought back against the contractor in an inspiring campaign lasting four years. Eventually they won reinstatement at an Industrial Tribunal. But no sooner had they walked out of the courtroom in triumph than the contract was transferred to another firm, which started to recruit a new workforce. The danger looms in the public sector of a two-tier workforce, with workers still in the public sector continually threatened by management with privatisation unless they "cooperate" with speed-ups and lower staffing levels.
"It’s a secret"
There are other losers in the PFI process. Democracy loses. Members of the Scottish Parliament have recently been trying to find out the reasons behind a riot in a Scottish prison. Given that the only way to save money in a prison is to pay warders less or pay less warders, they suspected that management had run down staffing levels to dangerous lows. When they tried to ask questions about this, they were told this information was "commercially confidential". Who elected the consortium running the prisons? When you bring capitalism into public services through the door, democracy goes out through the window.
Another example of how introducing capitalism into public services inevitably stifles democracy concerns the London underground. During negotiations earlier this year, it was proposed that Transport for London (responsible to Ken Livingstone, and the nearest thing to a democratic and accountable body in the Labour government’s PFI scheme) should have some control over timetables. The consortia were apoplectic. "It impinges on our rights of ownership," they spluttered. In other words seven million Londoners can go to hell.
They come first
PFI puts other pressures on the democratic process. There has been debate about "hypothecated" (earmarked) taxes. It has been argued that people would be more prepared to pay for taxes if they knew that the money was going to the NHS, for instance. Well, we already have hypothecated taxes – to pay the PFI merchants. £14 billion of contracts have already been signed. Over the next 26 years we have guaranteed to pay them £96 billion. Mouth-watering! Those payments come first. It’s like a mortgage – it doesn’t matter what else you need. It’s deducted at source. And it doesn’t matter which party you vote for in the next 26 years either – that money is already committed to passing out of our hands. The present government is mortgaging Britain’s future to PFI .
The institutions hardest hit by PFI are the local councils, which are already up against it. They are the first to feel the extra pressure. It’s called the "affordability gap". Haringey council in London has a fixed education budget. If it’s inflated by payments to the PFI privateers, as it is, then they have to cut teachers. There’s nothing else for it. Current spending has to be slashed in the interests of business.
Show us the money
Where are the savings? One figure is continually quoted by Tony Blair, a saving of 17% for PFI compared with conventional publicly funded projects, from a study by Arthur Andersen. What is the socialist response?
Arthur Andersen are a bunch of crooks. The Enron affair shows they have their hands in the till up to their elbows. Arthur Andersen make pots of money out of PFI. They have a vested interest in showing it’s a good deal. According to their survey 60% of the "efficiency savings" are from "risk transfer" to the private sector. The survey is based on a selective review of PFI projects, designed to prove what they’ve been paid to prove.
Within the group of projects they analyse a single large scheme, which is responsible for 80% of the "risk transfer" savings. This scheme was the computerisation of the Contributions Agency. As we showed earlier, no risk was transferred. We carried the can as usual. The bad guys responsible for the Contributions Agency fiasco were Andersen Consulting…a branch of Arthur Andersen.
I rest my case
Public investment is currently at its lowest level for fifty years, despite the budget surpluses. This scandalous state of affairs is partly because departments are being bullied and browbeaten by the Treasury into going down the PFI road, instead of just getting on with renovating the infrastructure.
The Treasury has some barmy rules on spending that are unique to Britain. Their measure of how the government stands financially is the Public Sector Net Cash Requirement (PSNCR). Just to confuse you, this used to be called the Public Sector Borrowing Requirement (PSBR). So if the Greater London Authority borrows to upgrade the underground, this looks bad on the books. If a private institution borrows the same money for the same purpose, that’s OK. This is potty! Regional airports and other bodies can go on to the capital markets and borrow because they’re not considered an arm of government. But elected bodies like London’s government and Ken Livingstone, the Mayor of London, can’t borrow a penny – even if we vote to let them, which is what Londoners did when we voted for Livingstone and against PFI.
Other countries have a different measure of public debt, which treats all public bodies and quasi-public bodies – the Greater London Authority and Bournemouth Airport – as substantially the same. It’s called the General Government Financial Deficit (GGFD). Dodgy accounting is done for a purpose, whether it’s to conceal insider thieving at Enron, to talk up share prices to suckers at WorldCom, or to inflict PFI on the living body of public services in Britain through PFI. The Treasury is doing an Arthur Andersen on the public finances.
PFI may be daft. It may be a very expensive way of providing public services. But it’s very profitable. And it’s coming your way. It’s been worked out that the global market for water is worth $1 trillion. There’s $2 trillion in education, and health weighs in at $3.5 trillion. Big business proposes to grab our public services with PFI. Fight PFI all the way. Don’t let big business steal your future.
July, 2002
