Labour found £6 billion in the last week to buy 166,000 houses for the Ministry of Defence. The spending wasn't budgeted, so how did it fund the money all of a sudden?
This is the audio version:
And this is the transcript:
Where did Labour find £6 billion from? It's a question that I think needs an answer because it has done just that. It found £6 billion to buy married quarters houses, which were mainly used by officers and staff in the Army. And it bought them back from a private finance company.
The houses in question were, in fact, sold before Labour came into office in 1997. This was one of the last of John Major's significant PFI, or Private Finance Initiative, arrangements of the Tory government that fell in 1997 and it was deemed to be good value for money because the Private Finance Initiative would supposedly keep these houses in good order and repair for the benefit of the staff in the army and the other services who might have use of them.
But that didn't work out. Like almost everything to do with the PFI, things got out of hand. Costs ran out of control because the opportunity within PFI to overcharge from the contractor to the Ministry of Defence, in this case, was enormous and expensive. And it's estimated as a result that there will be a saving of maybe hundreds of millions of pounds a year now as a result of these properties being bought back under Ministry of Defence control with it arranging the maintenance in the future.
But what I'm really interested in is that £6 billion that was used to buy these properties back because we are told continually by Rachel Reeves that there is no money left, that times are hard, the bank is bust, the Treasury has to balance its books, and I've heard nothing about this deal before the last week. And so, how did Labour come across a spare £6bn to fund it when they couldn't do things like relieve child poverty by ending the two-child cap, or pay for the winter fuel allowance for pensioners?
No, that's not what they're doing with money, but they could find it to buy a lot of houses. And how did they do that?
Look, it's very, very simple and very, very straightforward. Given that Labour will not borrow directly from the Bank of England, although it could, it must have increased the amount of borrowing that it is asked for from the City of London this month.
Simple, straightforward fact: it can go to the City whenever it likes and say, “We'd like money.” And in essence, there is an agreement between the Government and the City that whatever the government offers by way of debt issue to the City each month, a bank will subscribe for it. The banks don't guarantee the price they'll pay or the interest rate they will demand, but they will always buy the debt on offer. And that price, which they pay is, broadly speaking, guided by Bank of England base rate.
So, Labour went along to the City and said, “Can we have another £6 billion, please?” And the City said, “Yes, no problem. Here you are, have it. That's fine with us.” And now 166,000 houses, which used to be in private sector ownership, are now owned by the Ministry of Defence.
My point is this. John Healey, who is Secretary of State for Defence, stood up in the House of Commons to announce this deal and said it was one of the very worst private financing initiative deals.
He said that private funding doesn't work.
He said it would be cheaper for the government to borrow the money and to undertake the maintenance contracts itself.
He said that lessons should be learned.
And I strongly agree with him. There is absolutely no technical way on earth that a private finance initiative deal can ever be cheaper for the government than actually borrowing itself and undertaking the work in supplying the maintenance services on whatever property it acquires itself.
And the reason is very straightforward. The government can always borrow money at a lower cost than anyone else in the UK economy, and that is because it is the one and only organisation that can never default on its debt payments because it has the power to create money to always settle sums as they fall due, and therefore there is no risk premium in any money that is lent to it, meaning its costs of borrowing are lower than that for anyone else, and I do mean anyone else.
So, Labour found the money on this occasion, and my point is quite simple; it could find the money on any other occasion as well.
So why has Keir Starmer been off in the last month to Saudi Arabia with the begging bowl out, asking for foreign direct investment in the UK, including in public sector projects?
Why is he talking to BlackRock, the US private equity capitalist, about this same issue?
Why, when John Healey, the Defence Secretary, has said a private finance initiative deal was bad, and should have been reversed a long time ago, with which I agree, is Labour trying to create more such deals in a way that is bound to lumber generations to come with costs which are wholly unnecessary?
I don't know.
What I do know is that Labour can find £6 billion when it wants to.
And I do know it could find a great deal more if it had to, because that opportunity is always available, either by issuing bonds to the City, or by issuing bonds and buying them back, which is called quantitative easing, of course, or simply by borrowing direct from the Bank of England, which is a legal opportunity available to the government.
It does not need to use private finance initiatives to fund public sector projects. And they are always, as John Healey said, bad value for money.
So, my question is, why is Labour planning to carry on doing them when it already knows that it's doing bad deals?
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PFI: Public Fraud Initiative.
Why?
Because these are the people who fund political parties and who want a return from it
How many journalists will be asking those questions of government ministers and Labour MPs?
None.
And there is a huge part of our problem.
Why is Labour planning on more PFI deals when it knows that they’re necessarily bad economics, socially bad and bad government?
Well, Richard, your own diagnosis already answers the question: Neither the red nor the blue wing of the Single Transferable Party has yet admitted that they have a neoliberalism* problem . “The first step in solving any problem is admitting that there is one.” (The other eleven steps are probably equally appropriate to the enterists in charge of the red wing of the STP, but it is resistance to step one where they act most like a cult.)
* Many of you will know it already, but I highly commend Chris Hodges Report’s interview with George Monbiot/ The Secret History of neoliberalism. https://www.youtube.com/watch?v=see5c5Sgi14.
It is time to call the mainstram parties following neoliberalism a new name, the Uniparty, or Oneparty, as suggestions.
The Single Transferable Party has been used here.
Labour could do the same with the winter fuel,, child benefit cap and womens’s pensions. Obviously ‘black holes’ ae no problem now.
SScotland is still burdeneed with a huge number of PFI deal, underrtaken by the Labour party. Not a single one has proven to be value for money
Why?
Because they believe that they can do the wrong thing better – choose better PFI partners or those that they know or who have funded them – to deliver in this way. To change a system admits that government was wrong, and that means more work and I think Laboured are bit lazy.
And really, if Laboured went to the City for that money – well I’m sorry, I’d be much more happier if they simply printed it themselves than go to the City for their money. To me, if they found the cash in the private sector I’m not too happy about that. They are once more under-using their sovereign powers for the greater good and in the interests of natural justice.
What I’d like to see is a parliamentary commission on this whole debacle. I’d like them to fund that for sure.
As always, Jim Hacker & Sir Humphrey got there a long time ago – the Solihull project “Jobs for the boys” (and featuring our favourite banker, Sir Desmond Glazebrook).
Yes Minister! Series 1 Ep 5
https://www.bbc.co.uk/sounds/play/b007jlgh?partner=uk.co.bbc&origin=share-mobile
Sadly, there are now “Solihull projects” all over the country. Even the Labour Party has been completely taken over by the private sector and is its own PFI. Soon, they won’t even pretend to listen to the Trade Union voice, because they won’t need their money, their corporate donations will be more important.
Humour aside, what so infuriates me is that Starmer/Reeves/MacSweeney/McFadden have chosen to remain in permanent election campaign mode, and have completely ignored the business of GOVERNING. Ironically (and tragically for all of us in the 3-4 lower income deciles), this strategy is guaranteed to lose them the 2029 election, to Mu*k-financed Fa***e, and their 2029 election-oriented mindset is telling them NOT to do anything about Musk’s filthy lucre (because the focus groups might take it the wrong way).
https://www.theguardian.com/politics/2024/dec/21/ministers-resist-calls-to-block-musk-donations-to-farages-reform-uk
Labour are prepared to confabulate whenever they want to. This is why trust in politicians is so low. They are prepared to say what they want, when they want without a hint of truth in anything they do say.
Let’s not forget the debt fell by £1.5 trillion, so there is as Stavros would say there is “Loads of Money”
https://www.youtube.com/watch?v=ULeDlxa3gyc
“and to undertake the maintenance contracts itself.”
Devil, detail. The LINO imbeciles will probably out-source to Crapita or Scumco or some such garbage and be overcharged for a utterl crap service……….instead of building an in-house capability.
Just watch
There is a 99.9% chance you are right
Surely, as the issuer of our currency the government doesn’t have to borrow money from the City (or anywhere else)? I understand that taxes can then be used to remove money from the economy because of inflation risks. I suppose what I’m trying to say is that we need to get away from the notion that government is reliant on the City for finance.
That’s the whole point of the video…..
PFI and support for Freeport’s was the straw that broke my Labour Party membership card.
Why would the Labour leadership prefer to borrow off the private sector to finance state projects when there is a better source of funds “inhouse”?
Easy to imagine that all kinds of corruption are going on. Direct cash maybe or prospects of lucrative jobs after retiring from Parliament ?
Always likely,of course.
But isn’t the central problem that the Starmerites genuinely cannot imagine that the state machine is capable of managing anything? Their brains and beliefs are corrupted. Not just their finances. If any good ideas occur to them, they instantly wonder which private company can do the job.
If circumstances demand new initiatives, they just dread the thought of being left to do the hard work themselves. Anyway, for them, the idea that the state can and should undertake essential activities,has long since evaporated.
So deeply ingrained is this idea that they regard the practice of rigging the finances so that chosen private entities walk away even richer at the end, as being necessary for the survival of the whole economy. If private financiers cannot benefit from a state project, what,they fear,will become of us?!! In their world, nobody else can manage things. We HAVE to keep the financiers happy and well fed. If not, they will abandon us and then we will flounder and collapse. So they are ,in a sense, bribing the already rich to put their names to the contracts . And they genuinely believe that they are doing this for our benefit. Because we aren’t capable of running things ourselves.
Richard. I thought you said, in a previous blog, that there were 36,000 houses at a cost of £166,000 each? Have I got that wrong?
No, that is right.