PFI: the worst of both worlds

Nov 25, 2011

Alan Milburn - promoted PFI schemes when Labour Health Minister. Now filling his boots with pay from BridgePoint Healthcare - who take plenty from the NHS.

A famous rumour has it that Marilyn Monroe once whispered into the ear of Albert Einstein at a dinner party: “I want to have your child. With my looks and your brains it would be perfect”. To which Einstein replied: ”But what if it had my looks and your brains”.  Einstein’s riposte holds true for the Private Finance Initiative – the idea sounded great (to some) but reality dealt us the worst of both worlds.

It’s the 1990s and someone tells Tory Chancellor Norman Lamont: “Take the forward planning and strategic oversight of government and marry it with the capital-raising, bottom-line-hitting, lean efficiency of the private sector. Eureka!”

The Blairites later agreed and PFI quickly became what Alan Milburn called “the only game in town”. The construction, maintenance and service provision of public infrastructure like schools, hospitals and roads was outsourced to the private sector and long-term leased back to government.

But PFI is an inversion of all that it promised. It’s made efficient public planning harder and turned the public purse into a cash cow. Under PFI, big business has screwed the public sector, spawning a legacy of odious, off-the-books debt. Our national deficit would be around 25% greater if it was included by the Treasury (as it should, and would, be in several other European countries).

Our PFI tab stands at about £270 billion for the provision of public infrastructure. The Treasury Select Committee concluded in August that government could have saved £110 billion on that figure by simply doing the job itself.  For every £1 billion invested in public infrastructure another £700 million lines the pockets of the PFI industry’s banks, construction companies, lawyers and consultants.

Meanwhile, banks, infrastructure funds and offshore investment vehicles are stealthily taking charge of our public services via the secondary market for PFI equity. HSBC has a portfolio that includes NHS hospitals, state schools, military accommodation and the UKBA that it manages via a tax haven.

InnisFree, the largest PFI investment fund in the country organises PFI cannibalism. It manages money on behalf of Lloyds Banking Group and the 41% publicly owned bank makes PFI profits the at the expense of the public which owns it. InnisFree also buys PFI equity for Local Authority pension funds which, perversely, can reside with Local Authorities.

The PFI industry’s ‘other half’, the government, is hopelessly chasing its tail. The commercially confidential contracts, held between local authorities and PFI companies, prevent the disclosure of most meaningful financial information.

This is farcically counter-productive because it means that a Local Authority which wants to build houses cannot learn from it’s neighbour who built some last year. To disclose this would compromise the commercial interests of the PFI contractor so instead they must start from square one, hiring more contractors, lawyers and consultants.

But what’s public infrastructure about? Who is it for? What is more important – the commercial interests of corporations or the needs of the public for whom the infrastructure is being built?

Lamont: former chancellor now profiteering from public money. Another reason to despise him, if you needed one

Meanwhile, the public must pay for the poor PFI decisions of government for 30,40 and 50 years at a time because the contracts are so long. In the long-term PFI will cripple Local Authority budgets and we will be still paying for services we use today in 2050 because we are contractually obliged to, not because they offer good value or great service.

And so, instead of cheap and plentiful public infrastructure, we have a mess that private companies exploit and we have to live in. But some public sector ‘workers’ have done well from PFI. Former chancellor Norman Lamont is an advisor at Rotch Property Group, a high-stakes PFI player.  Alan Milburn, for his services in promoting markets in the Health Service, draws a salary at Bridgepoint Capital, a venture capital firm investing in private UK health companies.

We will be holding a GR Forum on the issue of PFI which will explain the issue and provide an opportunity to plan actions that will bring the issue into the public spotlight. Come along if you can:

Wednesday 7 December 7pm, Bank of Ideas, Sun Street, London (near Finsbury Square, tubes: Old Street, Shoreditch High Street)

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