As the Guardian reports this morning:
Taxpayers will be forced to hand over nearly £200bn to contractors under private finance deals for at least 25 years, according to a report by Whitehall's spending watchdog.
In the wake of the collapse of public service provider Carillion, the National Audit Office found little evidence that government investment in more than 700 existing public-private projects has delivered financial benefits.
The cost of privately financing public projects can be 40% higher than relying solely upon government money, auditors found.
I have a number of ways I could respond to this, but I am (for once) simply going for the 'told you so' route.
From 'People's Pensions' in 2003, where Colin Hines and I advocated local authority bonds as an alternative to PFI, the the Green New Deal, where we developed the theme, to green quantitative easing, and then People's Quantitative Easing, I can claim some credit in being an anti-PFI campaigner, and always because it was glaringly obvious that it failed to deliver value for money.
That is 15 years of saying so.
And now, finally, the NAO catches on.
Three questions:
- Why has the NAO taken so long to state the obvious?
- When will local authority bonds be part of the UK savings architecture?
- When will People's (or Green, for they are the same) QE be used to underpin those bonds via a National Infrastructure Bank, which is an idea Labour borrowed from my work?
We cannot afford to wait for answers.
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This is a truly significant development, especially so considering that the NAO report was writen before the Carillion collapse.
I think that there is a distinction between the old PFIs where a deal was constructed to ensure a SSAP 5 off balance sheet treatment.
In some deals the risk transfer values inflated the public sector comparator because the choice was PFI or no project and not PFI or traditional procurement.
“I think that there is a distinction between the old PFIs where a deal was constructed to ensure a SSAP 5 off balance sheet treatment.
In some deals the risk transfer values inflated the public sector comparator because the choice was PFI or no project and not PFI or traditional procurement.”
Please, what do these terms mean, in plain English? “SSAP 5” and “comparator”.
I wonder if the non-executive directors of Carillon are still being paid.
I wonder if the senior staff in all those arms-length joint venture vehicles are still being paid.
I wonder what other avenues for the expression of Carillion’s support for commercial dynamism in public sector leadership are still intact, and still paying.
The answer to your question lies in those avenues.
…And, perhaps, in the study of comparative theology. Specifically, in Japanese religious pracices concerning a kind of reincarnation-in-life: ama-agari (‘ ascending into heaven’), and amakudari (‘descending from heaven’).
I wonder if you have any thoughts about Larry Elliott’s piece in today’s Guardian on the lessons of Carillion.
I agree with him
I argued for his point 3 here this week
I do not know of that influenced him, but we do know each other
Richard, do we negotiate out of the existing PFI/PF2 contracts or do this windfall tax on the profits made from them that Stella Creasy is talking about?
With 700 contracts I think it fair to say many policies will be needed
“Why has the NAO taken so long to state the obvious?”
Because the object of PFI was always dishonest. It was a device intended to hide government spending by taking off one set of accounts/ledger sheets or whatever and have appear to be something else.
NAO by applying the orthodox accounting rules played the game instead of questioning the (fantasy) rules. As long as the figures stacked up that was counted a success.
When I worked in theatre we had to borrow stuff (from local retailers) to furnish the stage, knowing fine well it would be knackered at the end of the production run. So the lender would be then paid the price of the spoiled goods which were no longer saleable. This meant the acquisition budget was kept in order and the eventual payment was attributed to a different budget column.
Time was wasted at both ends of this process – it’s much quicker to buy than to ‘blag’. The time spent returning borrowed stuff was much more profitably spent selling the stuff via a very popular on-stage table sale at the end of the season and the proceeds paid for the refurbishment of the entire stage lighting equipment in two seasons.
Where the obsession is with money only the accountant is happy (as long as the books balance). Where the object is to get the job done everybody profits.
Not on PFI specifically but related article on how borrowing for public corporations is treated differently in the UK from elsewhere:
“While German public banks and utilities can borrow and invest prudently without clouding the debate about day-to-day government spending, British public corporations cannot. In the age of austerity, this self-imposed constraint creates an obvious political bias against public ownership. It’s little wonder we hardly have any public corporations left.”
https://www.opendemocracy.net/neweconomics/pfi-privatisation-national-accounting-rules-encourage-destructive-decisions-time-change/
Back to the Political Economy …
As I read section 1.11,ppi has led to better maintained buildings because it is harder to cut contracted maintenance spend. That is surely a big benefit of these deals
Pardon?
would you prefer to go to a hospital that is badly maintained as a result of departmental spending cuts or a well-maintained hospital?
??
What are you talking about
Given the government can do the job much cheaper than PFI there is no question what is the best option
graeme says:
January 18 2018 at 7:07 pm
“….would you prefer to go to a hospital that is badly maintained as a result of departmental spending cuts or a well-maintained hospital?….”
A classic rhetorical question. Of course one would prefer a well maintained hospital.
Does PFI provide well maintained hospitals? If yes, is it a cost effective way to achieve tht end?
If the PFI contract wasn’t so ludicrously expensive in the first place maybe your health department wouldn’t be quite so strapped for cash?
If the PFI contractors built decent product in the first place schools in Scotland wouldn’t fall down and require so much maintenance budget to make them serviceable.
PFI is a silly way to finance public spending. It’s indefensible. Except as a book keeping exercise. (And if the government hadn’t shut all the libraries we’d have enough shelves to keep books anyway – that’s like a joke. Because if I don’t laugh at stupidity it makes me angry.)
Cost versus value. At my local hospital, one ward is almost falling down. In the new ward, you are not frightened of the integrity of the ceiling
That’s a function of age
Not PFI
I think we know where we are with depoliticisation when, in words of John Crace, May can say:
“The government is just a customer of Carillion,” said Pontius Maybot, momentarily forgetting she was PM. And that she had promised on her first day in office to use her position as the most powerful person in the country to stand up for the low-paid and the insecure. Sometimes her lack of self-awareness borders on the pathological.
The ‘government is just a customer – that sum’s neo-liberalism up better than a thousand books! Credit to the ‘Maybot’ for giving us a new, handy definition!
Very good
Simon Cohen,
will you stop pinching my lines before I’ve had time to formulate them. 🙂
I love the (Unselfconscious) Pontius Maybot.
It saves so much in travel costs and inconvenience if you don’t even have to go to the trouble of ‘being on holiday at the time’ to avoid responsibility.
Steve Bell is clearly on a similar wavelength.
https://www.theguardian.com/commentisfree/picture/2018/jan/17/steve-bell-on-theresa-may-and-carillions-collapse-cartoon
Doesn’t the NAO report specifically state that they have no view on ‘value for money’ i.e.
‘Although we do not form a view on the value for money (VfM) of PFI and PF2’
Quite specifically the did state a view
How do you think all media reported it unless they had one?
Paragraph 5 of the Overview from the full report:
‘Although we do not form a view on the value for money (VfM) of PFI and PF2 there are some key points which have emerged from our work which we would like to highlight:’
They very clearly have issues with PFI but they say they did not form a view on value for money. How the media reported the report doesn’t change their words.
Except they did say it cost more….
Whilst not expressing a view, paragraphs like the following seem to imply a ‘draw the obvious conclusion’ instruction:
3.14 While any reduction in the cost of equity provides savings for taxpayers, equity
typically makes up just 10% of the financing structure. The other 90% is provided in the
form of senior debt. It is therefore important to consider the debt costs in order to calculate
the overall return to investors and costs for taxpayers. Information on debt costs and total
return to investors is collected by the IPA but is not published. The projected return to
investors (debt and equity) after tax for the six PF2 deals agreed so far is between 4.5%
and 5% — approximately double the cost of government borrowing at the time these deals
were agreed.
of course the whole ‘savings for taxpayers’ is the wrong framing anyway and the whole thing is transparently the state providing support for big corporations whilst the political parties receive a ‘bung’ themselves combined with all sorts of conflicts of interest.
Thanks
it seems that the report is more nuanced than the papers are reporting:
1.6 Our previous work found that project managers reported that PFI projects were
delivered within budget more often than non-PFI projects.5
As part of this 2017 study we
surveyed 11 government departments. Responses showed cost certainty was generally
seen as a benefit of PFI (five of the eight departments that responded to this question
considered that certainty over construction costs was better under PFI). Increased
certainty about price does not necessarily mean that the cost the public sector pays
for construction is lower: the Treasury Committee found that some PFI projects charge
higher prices for construction to cover unforeseen costs.6
Prices can still increase in PFI
projects, particularly before final terms are agreed at financial close. Our report on PFI in
housing reported significant capital cost increases compared to initial estimates.
In other words, cautious managers choose to overpay to cover their backsides
[…] “Why has the NAO taken so long to state the obvious?” tax specialist Professor Richard Murphy Professor Murphy asked in a blogpost Thursday. […]
Three devils’ advocate answers:
1. Because until something went tits-up, it was irrelevant. The relevant thing was that the cost wasn’t on government balance sheets and the extra charge over a lifetime was, to quote Douglas Adams, an “SEP” – quite literally, as Tony B Liar and his minions would be long gone by the time the excrement impacted tangentially with the ventilation.
2. And give real financial clout to local authorities? Sooner will geese grow fur.
3. And give real financial clout to ordinary people? See answer 2.
Would you accept that there is a difference between price and value? Is the cheapest good always the better one? On the other hand, was there gold-plating? Do you accept that there is room for nuance? A quick look at Carillion ‘s accounts suggests that Canada was a big problem. If so, could you accept that their UK performance might have offered reasonable, not exceptional, value for money?
I did look at the accounts
The country-by-country reporting is effectively absent
Your claim is hard to substantiate
Graeme,
Sorry for the late reply, I must’ve overlooked this point earlier on.
For what it’s worth, however, I’m not sure that the term “gold-plating” strictly applies to PFI’s but is more directly applicable to private monopoly utilities and others that are subject to straightforward (straightforwardly stupid) rate-of-return regulation.
Do correct me if I am wrong.