I have published this video this morning. In it, I argue that the private finance initiative (PFI) was one of the worst legacies of the last Labour government. It was a massively expensive attempt to avoid incurring government debt. We're still paying the price. And it's looking like Rachel Reeves might be planning to do something similar.
The audio version of this video is here:
The transcript is:
Is Labour planning to do PFI again? The idea really worries me so let me explain what I'm talking about.
PFI stands for the Private Finance Initiative. It was an idea actually created during the period of John Major's government from 1991 to 1997, but it was expanded considerably by Labour under Gordon Brown.
And what happened was that things that should have been paid for with government borrowing were instead financed under contractual arrangements with private sector companies at extraordinary cost that left a burden of effective debt, and of that cost, on very many organisations, many of which were hospitals and schools.
What happened? Well, we wanted a new school. The government didn't borrow to pay for it. It contracted out the whole construction and maintenance programme for that school for a period of up to say 25 years to a private builder.
They raised the money, always at a cost more expensive than the government would have paid because the government can always borrow cheaper than any private sector organization simply because lending to the government is always risk free, and then the private sector contractor also set up a schedule of charges for maintenance.
Absurd charges in many cases. £100 to change a lightbulb or something like that, and I'm not kidding.
Absurd expenses for having to repaint a wall if it was damaged, which happens inside schools, hospitals or anywhere else.
And the burden of debt has been extraordinary. One of the best documented cases was Norwich Hospital, where they are still paying the price.
And in Scotland, where PFI was used enormously by Labour, the consequences have been dire. The SNP government in Holyrood has been, well frankly, crippled by the level of debt that it is servicing through the PFI initiative.
So the last thing that Labour should do is ever go near PFI again. It was a mistake, it was stupid, it was all about balance sheet engineering to pretend that debt was not rising, and actually costs were going through the roof as a consequence.
But why am I worried then? Well, rumour has it that Rachel Reeves is planning to bring in a very large number of private equity fund operators to meet with the new government when, as we believe is inevitable, Labour is in office from the 5th July, this coming Friday.
And why would she invite those people in? Because, clearly, she has a deal to make with them. What is the deal? Rumour has it that it is some form of updated private finance initiative. In other words, she wants to dump the debt that she would otherwise put on the government balance sheet at very low cost onto the private finance initiative or whatever else.
If that's the case, this is madness. I can't think of another word to describe it. It is straightforward financial folly.
I mean, what else can one say about something which has clearly not worked and yet which you're thinking about again?
So, I live in fear of this, because its exactly what a Labour government that we know is all in favour of public private partnerships, and is all in favour - as we've seen from the attitude of Wes Streeting within the NHS in bringing private sector operators in - might do. And that is the last thing that we all need.
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PFI is demonstrably a failure, no party in their right mind would foist more of it on the country.
To me, the system sounds corrupt. I wonder which MPs have their nose in the trough?
Reads
“The toxic legacy of PFI, healthcare charges and a measure of gratitude”, The Guardian (4 Jul 2023)
https://www.theguardian.com/society/2023/jul/04/the-toxic-legacy-of-pfi-healthcare-charges-and-a-measure-of-gratitude
PFI: ‘The rip-off that just keeps on taking’, Labour Research Department, (14 February 2023)
https://www.lrd.org.uk/free-read/pfi-rip-just-keeps-taking
Billions being spent on wasteful legacy PFI contracts, Scotsman.com
https://www.scotsman.com/interactive/lost-billions-private-finance-initiative-scandal-NHS-schools
Thanks Ian
Kept for reference
A former colleague was a governor on a PFI school.
It cost something like £1000 every time to hold a Governors meeting, payable to the PFI contractor
You do not surprise me
It is one reason why schools cannot be community centres in many cases
PFI is essentially outsourcing. The idea that another person might be able to provide a business function or a part of a business function and better than you could yourself.
That can work well where there is a well developed service sector with scale (so a choice of providers) and expertise (better than available in house) and the function is well defined (so you know what you want, and can easily see if you are getting what you expected). So it may make sense to hire a payroll provider, or an external accountant, or an entire HR function. There are risks – loss of control, risk that you don’t know what you want or need what you get, risk that the need may change but you are locked into a contract that is hard to change.
The primary drivers of PFI are first the financial engineering – the self-imposed ideology that a government must not borrow up front, but can afford to enter into a long term contract to pay service fees which usually end up being more expensive over time. Arguably the cost of such contracts could and perhaps should be capitalised up front and released over time. That would eliminate the accounting subterfuge.
It seems to me the other main factor is the ideology that the private market is more “efficient” than the private sector. The profit motive tends to lead to exploitation (of workers, and the public paymaster) and bad value for money – the establishment and exploitation of dominant positions of supply or demand (monopoly and monopsony). The NHS for example has been fantastically “efficient” in terms of what it can deliver for the money. Adding a profit element does not drive efficiency – it drives a search for increasing of prices and cutting of corners on delivery.
Much to agree with
Er Richard, think your estimate of £100 pound to change a light bulb is a little off.
The cost of changing a light bulb in a PFI Contract was £300. And a PFI school found it had to pay £300 to install a single plug socket.
[Source: https://www.channel4.com/news/factcheck/factcheck-does-pfi-offer-the-taxpayer-value-for-money%5D
This was in 2011, so what might it cost now given inflation and interest rates rising between 2022-23 and 2023-24.
PFI was never a good thing for anybody except for the Special Purpose Vehicles, such as Innisfree. And if Labour reintroduce them, then god help us all.
My experience is a little old then
Crazy…
Hi Richard,
One of your commenters on here , Col. Smithers has alluded to this in a number of posts. The Guardian article by Gabor makes for grim reading.
I am hoping that the the turnout is low enough to describe the next Government as illegitimate, in order to shorten its tenure. Then, as you have pointed out with the article on United Utilities, parties outside parliament need to act, and ultimately to replace it with one more representative of the people.
Regards
Oh my god here we go again..
We’re none of these people alive last time round?
Are none of them capable of looking at the costs and consequences of PFI?
Does the Labor party not possess one single person who can scream stop! at the top of their voice?
Not a single well informed MP capable of critical thinking and basic historical and economic research.
The actual definition of insanity it beggars belief.
I have never been so depressed at the prospect of an incoming Labour Government
God help us all.
Interestingly, my local MP worked for UNISON (she was my manager) during the huge expansion of PFI under Blair. She was involved in union campaigns against the principle of PFI for the very reasons that are now so well known and accepted. I wonder if she will be one of those screaming STOP!!
I imagine many of those kicked out of the party (with the support of the “centre-left” media) would have raised their voices and shouted “stop”- which is one reason why they were kicked out. And when the time comes for a reckoning, the powers behind all this will plump for a far-right alternative, since that will continue to serve their interests, not those of the many.
Thank you, Richard.
The shadow Treasury and Business teams have said as much. They see “government as ensuring all levers pull in the same direction” and “the private sector delivering public services, developing infrastructure, sometimes in partnership with government, and seconding staff to all levels and corners of government”.
Blair’s team has organised three working groups to “advise” the Labour leadership, banks, investment firms (including private equity) and a mixed group of industrialists and think tank types. The private equity types have emerged as the thought leaders.
Further to Richard’s other post, civil society, New and New New Labour see no role for civil society, unions etc. I think resistance to Labour must come from the grass roots and, echoing Mike Parr, point out that, for example, clean rivers is not left wing.
Richard and readers may be interested in: https://www.nakedcapitalism.com/2024/05/tony-blair-and-his-associates-are-waiting-in-the-wings-to-seize-back-power-in-the-uk.html and https://www.nakedcapitalism.com/2024/02/why-is-tony-blair-so-desperate-for-the-uks-national-health-service-to-sell-off-its-patients-health-data.html.
The fight has only just begun. There is just a change of personnel, not policy.
Aside: Yesterday evening, I attended a professional body’s summer evening reception on a roof top overlooking London. The master, or really mistress, is my former manager and junior Treasury minister. She has been campaigning in her home county alongside fellow resident and former colleague Theresa May and reports a hot reception, even being told to f off, in once Tory strongholds and perhaps soon to turn Liberal. They can’t go on offence elsewhere, the first time in their political lives. I got the impression that they still don’t fully understand why the voters are about to kick them out.
Much to agree with
I forgot to link: https://www.theguardian.com/politics/article/2024/jul/02/private-sector-lobbyists-embedded-into-labours-shadow-cabinet-teams.
This practice has gone on for years, although it used to be mainly the Big 4 doing it. No doubt they still do.
Don’t forget that not only has Ruthless Kier driven out left wingers, he has also stuffed the ranks of parachuted in MP candidates with dozens of corporate lobbyists.
https://novaramedia.com/2024/06/13/meet-the-labour-candidates-lobbying-for-oil-gas-and-arms-companies/
It isn’t mad, it’s malevolent. It leaves ordinary folk having to go to work to earn money to pay back loans (plus £££££s interest) to private firms which need never have taken place, the money which they’ll be lending having been created in the first instance from nowhere as spending by the very same govt which now claims it has no option as there’s a shortage of money. It serves to establish as normal the idea of a two-tier society, one which works and yet has very little to show for it and one which does very little but sit back and be greatly enriched by being gifted the efforts of the lower tier. Guess which tier we’ll be seeing Starmer, Streeting and Reeves in? As understanding of this grows, we’ll see an end to politics as we’ve known it, I’d say. I see a big market ahead for pitchforks and flammable torches too.
PLEASE, PLEASE say it ain’t so, Rachel Reeves.
Returns offered to the private sector will exceed gilt yields….. and we know how efficient the private sector is… efficient at trousering our money.
Surely experience to date must rule this out. If not, it’s a clear indicator that neo-liberalism is now a pseudo religious cult. (Although I fear I do religious faith a grave disservice).
You do, but justifiably so in the circumstances
Regrettably this smacks of the world of Blair and Mandelson, rehash old projects and bluster your way through.
Expect no proper review of past PPP projects to get an idea of what went wrong and so on.
Billions are likely to be wasted, with the resultant building running costs exceeding the budget of for example most schools.
But this will fill the Labour HQ daily news board.
Thank you, John.
The owners of / donors to Blair and Mandelson may disagree with your characterisation of such arrangements as waste. Their lifestyles don’t fund themselves.
I have come across the pair after they left office. Their ignorance was commented on by attendees. It’s the same with Gove.
Private investors will ultimately want more in return than they’d get from govt bonds, otherwise they’d just *buy* govt bonds. Duh! I suspect this is less about ideology than fear of another Truss episode, which would sink a govt long before the true cost of PFI comes due. While govt observes the full funding rule + central bank independence, austerity and privatisation are baked into the system.
Well chaps & chapesses, the future in terms of where the UK is going to go looks very very grim. It is interesting to see that LINO politicos have learned nothing from the past, but I suspect they don’t want to. Their hunger for power is so great they just don’t want to consider anything else.
Also Colonel Smithers comments about the Tories being deluded – suggests a detachment from voters/constituents that is both surprising and touching – nah the Titanic is unsinkable – glug glug.
We, the Indy supporters group will let the dust settle and start working with any & all indy councillors that want to implement Community XXX (which I think I’ll trade mark so the idiot that owns Tesla can’t get his hands on it). Might even do things with the Lib-Dems. If the UK is to have any sort of future it will have to be via localism and communities, there is nothing else left.
Today Jonny Mercer, the Veteran’s Minister for the next day or so, had his wife call out the police to compl;ain about people protesting against him. That was it.
Deluded is too kind a description.
The other thing about PFI contracts is their sheer length: after doing a ‘deal’ with the outsource ‘partner’ – whose contract lawyers know all the angles, unlike the government people, especially at local government level – the unequal terms are then applied, rigorously, for decades.
In my city we had a ‘street tree scandal’ – finally resolved after attempted brutal suppression using the police and courts, demanded by the then Labour council leadership, led to such a public outcry that they had to back off. Eventually we got an independent inquiry. But one of the drivers was that the road-maintenance contract paid the contractors to remove each tree; and they would have demanded far more to find ways to mitigate damage and preserve the trees. The contractor’s general performance on road repairs and maintenance is poor; but we’re locked into a 25-year deal, I think.
Similarly for waste collection and disposal services…
There seems to be no effective ‘performance review’ and potential ‘termination for non-performance’; or if there is, it’s so weak as to be easily dodged by the contractors.
Asymmetrical information (and bargaining/contract capabilities): classic (un)free market capitalism.