Wes Streeting wants to fund 200 new NHS health centres through PFI. But the Public Finance Initiative was a disaster in the past – locking hospitals and schools into decades of expensive contracts. Profits were privatised while risks and debts were socialised. This video explains why PFI 2.0 is a betrayal of the NHS, why it costs more, and why the government should fund health centres directly using its own currency.
This is the audio version:
This is the transcript:
There's a very worrying development being reported by the Financial Times this week, and that is that Wes Streeting, as the health secretary, wants to bring the Private Finance Initiative or PFI back into government funding for new neighbourhood health centres right across the UK.
He's planning 200 of these, which are supposedly going to revolutionise the NHS, in his opinion - but not in the opinion of most people within the NHS - and he wants to fund them using PFI, or in other words, with private money.
Now, this is a model that was created by John Major's government, back in the 1990s, for those old enough and with long enough political memories to go back that far.
And the model was then taken on by Gordon Brown as Labour Chancellor and expanded massively.
And it failed; let's be clear about it. The model was a total financial failure. It remains a total financial failure because many of these contracts are still running. And the big question to ask is why are the mistakes made back then still being made now because Wes Streeting wants to use the model all over again to harm the NHS once more.
Let's just look at a little bit of the history here.
In the 1990s, the Tories began to be obsessed about the level of government debt. As a result, they created the Private Finance Initiative. The idea was that the government would not pay for the development of state infrastructure; things like the NHS Health centres that Wes Streeting now wants to fund.
Instead, the private sector would build these assets and then, in effect, rent them to the government. As a consequence, it was claimed that these assets would never need to go on the government's balance sheet for accounting purposes. And as a result, there was no borrowing.
Now, all of this was complete nonsense. For anybody who is a professional accountant, you will know that if a client rents a leased asset over a very long period of time, the asset is actually treated as if it belongs to the person who uses it, and not to the person who creates and leases it, and the liability that they have to pay with regard to the rent into the future is put as a loan on their balance sheet.
In other words, the only reason that this model worked was because government accounting was so bad, and people didn't know enough about accounting to be fooled by this stupid arrangement that trapped public services into contracts that were up to 30 years long and excessive in price.
The bad thing was that the incoming Labour government in 1997 were obsessed with using PFI. And I will tell you this because I had the person who, at one time, was scheduled to be the Chief Secretary to the Treasury, Andrew Smith, an MP for Oxfordshire, if I remember rightly, sitting in my own office, in my own accountancy practice, asking if I would help Labour with this initiative. And in due course, Alistair Darling, when he took on that role, did also became obsessed with promoting PFI and the cost has been enormous.
And all of that because none of these people understood the most basic elements of modern monetary theory, which explains that the government issues its own currency and it can therefore always fund investment, and what is more, it can always fund investment more cheaply than the private sector can because the private sector has to pay a premium for the risk associated with private sector borrowing, and the government does not.
In that case, the claim that there was, first of all, no money was just political theatre. The government can always create the money it needs to fund any project that it thinks is worthwhile. And the claim that it was cheaper for the private sector to fund these activities than for the state to do so was very obviously completely and utterly wrong.
PFI was then all about ideology, false accounting, political shenanigans, helping the private sector, but not for one moment was it about necessity.
And the truth is that PFI has turned out to be vastly more expensive than the state-funded alternatives.
If I just look at some data from the Scottish government - and I've got it from the record of a debate in the Scottish Parliament in January 2025 - it's recorded there that North Ayrshire Council is paying £16 million a year for four high schools. But the point is, the contract, which was signed until 2038, will involve that council paying £440 million in total for schools that were built for a total estimated cost of £83 million.
In other words, the cost to the state sector of building these schools was almost five times the real cost of their creation and repayments of two to three times the original cost are absolutely normal.
Now I'm aware that those in the PFI sector will say, 'Ah, but we are responsible for maintaining the assets thereafter', but everybody who's ever been involved in a PFI, and I have been, I have seen this from the era when I was involved as a school governor, knows that the cost of undertaking activities through PFI is vastly higher than it would otherwise be.
For example, you want to do something simple like change a light bulb. You are not allowed to do that. That's covered by the PFI contract. So you would just get on a step ladder, go up there, change it, come down again, all done. But to have the contractor come in and do it, let's have £125 please, and onwards: this is how it works.
And the fact is that profits have been privatised by PFI contracts, but all the risks have been socialised.
And let's just pick up that point on risk being socialised because it's really important. One of the best examples here is of the Royal Liverpool University Hospital, which was being constructed under a PFI contract by a company called Carillion PLC at the time when Carillion went bust in 2018. The hospital was put into limbo. Nobody knew who was responsible for what. Work stopped. Everybody was in a quandary for some considerable period of time. The PFI contract had to be cancelled. But as a result, some private sector losses were enforced upon people who had lent to Carillion, but overall, the hospital, which should have cost around £335 million, eventually came in with a bill of over £1 billion, and it arrived in 2022. This idea that there was somehow a benefit as a consequence of PFI was blown apart by the Royal Liverpool University Hospital.
The profits had been privatised. I know Carillion went bust, but that was because of their own incompetence.
I know that some people who lent money to Carillion had to write off loans as a consequence, but that was because they made poor loan decisions.
But the fact was that the eventual price was very much higher to the state than it should have been because a PFI contractor had been involved.
The delays, the redesign, and simply putting right the faulty work of the PFI contractor massively increased the cost. And everybody got their benefit late. Risks were, in other words, socialised, and the profits would've been privatised.
There is no public benefit to PFI. The risk transfer, which is supposedly taking place from the state sector to the private sector, has always been exaggerated when it comes to PFI. The treasury has fixed its model of PFI to make sure that this is the case, and I have absolutely no doubt at all that this will be the case with regard to the projects that Wes Streeting is now talking about.
There is no possible public gain from having 200 health centres built by the private sector when the state sector could do it more cheaply and contract with each of the individual builders in turn, without having to involve PFI at all.
The government can never get public assets more cheaply than it can create them itself.
And the government is therefore failing hospitals, failing schools, failing doctors, nurses, teachers, patients, students and always the state is left at risk. And all because a dodgy accountancy trick is being used to justify ideology.
And what is more, the penalties carry on for decades. The average PFI contract lasts for 25 to 30 years with remarkably little flexibility inherent within them. There are massive penalties if the government wants to change its mind on anything. If it wishes, for example, to redevelop a building during the course of its life, the price of making the change is enormous. And yet no building in the public sector will continue without alteration over that lifespan. Wards will be redesigned. Schools will want to change the layout and use of classrooms, and on and on. But all of that happens for the gain of financiers and not for the benefit of schools or patients.
The NHS and public authorities are drained of funds as a consequence. Cleaning, catering and maintenance have all been cut back as a result. And very largely, there has been outsourcing of contracts from those who were previously working for the state sector into the private sector with consequent loss of pay and rights, and very often the imposition of zero-hour contracts.
So it's not only those who benefit from the services, but also those who work within the services who have been prejudiced.
This is therefore a ridiculous policy. And it all comes down once more, as it did in the era of Gordon Brown, to an obsession about debt.
Rachel Reeves does not want to increase the debt on public balance sheets, and she's willing to pay an enormous price not to do so. We will be paying quite literally for her vanity for decades to come.
This undermines democracy, and it undermines accountability. It guarantees private profits to private companies, but there is more debt, whether Rachel Reeves wants to admit it or not.
We cannot see the resources of the NHS diverted from care to finance again.
We cannot see old mistakes being dressed up as new reforms once more.
PFI 2.0 would mean even more NHS money is wasted.
We would be seeing a long-term drain on public finances, and services will be weakened for decades.
That's a betrayal.
The government must therefore fund its own health centres.
It must provide the money for these.
It must be clear about why it's doing so.
It must explain the private benefit.
MMT must be used to explain why PFI is not necessary.
The explanation does in itself justify why those like me who talk about modern monetary theory and how it promotes the understanding that the government is never constrained by a lack of cash is so important.
And, for everybody's sake, we must say no to PFI in the NHS.
Rebuilding Britain requires the courage to use the power of the state. It doesn't require private money.
What do you think?
Do you want the state to build our new health centres? Or would you prefer that they were built by the private sector at considerably greater cost? Do you not know? Do you need more information? Or do you think there's a third way? Let us know. There's a poll down below, and I'll be very interested in your opinion.
Poll
Should the NHS use PFI to build new health centres?
- No – the state should fund them directly (64%, 205 Votes)
- All PFI contracts should be banned forever (36%, 117 Votes)
- Yes – private money is better (0%, 0 Votes)
- Not sure – I need more information (0%, 0 Votes)
Total Voters: 243
Loading ...Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
Comments
When commenting, please take note of this blog's comment policy, which is available here. Contravening this policy will result in comments being deleted before or after initial publication at the editor's sole discretion and without explanation being required or offered.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
We know that PFI/PPP is a financial scam designed to give the private sector massive profits.
And when the hospitals etc are returned to the UK state guess what? They are at the end of their life span and require replacing.
The utter stupidity of out sourcing the UK’s defence capabilities, plus continued austerity means for example neither of the two aircraft carriers can go out unless the UK’s allies supply the support vessels.
Does LINO understand/care? Obviously not.
“Private Finance Initiative: hospitals will bring taxpayers 60 years of pain”, The Telegraph 2008
https://www.telegraph.co.uk/news/politics/8279974/Private-Finance-Initiative-hospitals-will-bring-taxpayers-60-years-of-pain.html
“REVEALED: The true scale of school PFI debts”, Schools Week (2016)
https://schoolsweek.co.uk/the-true-scale-of-school-pfi-debts/
Thanks
This leaves the open question: if it is so blindingly obvious – why do the current crop of politicos continue to line the pockets of middle men?
I call them middle men because they bring nothing to the party – if the gov funded the building of a hospital or school, it is probable that the same set of contractors would be used. Now if the middle men took e.g. 5 or 10% of the overall cost – hmm maybe. But the numbers show that it is more like 200 or 300%. UK serfs have been taken for a ride since the tories came up with the scam in the 1990s and the idiot Brown continued with it – so he could look good & lacked the courage to make the case for gov-funded investment. I don’t think Brown was dishonest – it was/is a mix of vanity and ideology (in the case of the tories = lining their mates pockets – thus nothing new)..
Who is promoting this PFI nonsense (apart from the companies that will benefit)?
You don’t even need MMT to understand why this is a disaster waiting to happen.
Route 1 – Borrow in the gilt market at 5%. Build and run hospital.
Route 2 – Every year pay someone else to to build/run your hospital…. who borrows at 6%, builds that (higher) interest cost into the “price” it charges – along with a profit margin and a bit (or a lot) more to cover the risk of things going wrong.
Route 1 costs 5% per annum; Route 2 costs 9% per annum…. surely a simple decision.
The only reason to use PFI is is you really believe that the Private sector can “do it better”….. and 40 years of experience tells us that what they “do better” is merely to extract money.
I would also note in passing that the Thames Tideway Tunnel CEO has just left his job after completing the project on time and budget (broadly speaking). He noted as reasons for success (among several) – fewer subcontractors, more direct employment. Insisting all contractors paid the London Living wage. Food for thought when pondering PFI
Thanks
George Monbiot has the answer to that. The same people who were so proud to have created Liz Truss spectacular budget are completely integrated into Starmer’s Labour.
https://www.theguardian.com/commentisfree/2025/sep/11/tories-rightwing-junktanks-no-10-government-civil-servants
And as Reeves is going to have a bonfire of regulations for her private equity mates, one can only surmise that she is either an economic imbecile or that they have opened an offshore secret fund for her early retirement .
https://www.theguardian.com/politics/2025/sep/10/rachel-reeves-tells-private-equity-bosses-she-plans-to-shut-down-more-regulators
Everytime I have been involved in talking about contracts – in my case Ship Repair & School Cleaning just as a conversation what comes up is that the Contractor makes the money on the Variation.
Now in the case of putting a ship into dry dock you have either specified the right amount of steelwork to be replaced (Whoopee!) or its sitting in the dry dock with half the bottom cut away and the nice man from the MCA says you have to do the lot and suddenly Mr Ship Repairer isnt as cheap as he was.
Now the idea as you have said that HM Gov can specify to the Nth degree what Gasworks Lane Junior Mixed Infants needs next September let alone September 2050 is clearly ridiculous and the would be contractors are rubbing their hands gleefully
The Investment Appraisal process is rigged in favour of the Private Finance option. Discounted cash flow, optimism bias, risk transfer, failure to monetise some public sector benefits, etc etc, all used to get the result the Government wants, urged on by greedy investors.
Another thought. There really needs to be a rapid and thorough review of the Green Book, which is publicly available, by someone who knows what they’re doing. Now, I wonder who that might be. …………??
Time is finite
I have long laboured under the impression that those in charge were very clever people way above my intellect. What I took for confidence and ability was just in fact ideological arrogance because it was all set up to line the pockets of certain people.
PFI is the most stupid thing I have ever seen a government do.
And then they have temerity to impose austerity on organisations paying these PFI fees and say that ‘they have no money’?
I mean, what is supposed happen then? I watched the film ‘Idiocracy’ again the other day and it is no longer as funny as it used to be because it is getting to be strangely familiar. The film is more like a social commentary.
Gordon Brown is no better than another supposedly clever man of the Left – Harold Wilson. Wilson spoke of the ‘white heat of technology’ driving improvements in British industry and bamboozled by the Mayfair Set whom instead of investing in British industry, just invested to liquidate British companies and their assets and rewarded those who put up the money for what was just legalised theft. I think Tony Benn tried to warn Labour about this but was just shut down. We live with the consequences today.
What is life all about today? Rent extraction – extract, extract, extract until there is nothing. Then pull up the drawbridge and let it rot.
So much for democracy. It is greed that has turned out to be cleverer.
One reason, seen in Sheffield, for the waste of PFI contracts: councils, and govt, think negotiation is easy and that the other side are reasonable and good chaps. The private beneficiaries know how to set up a contract and have professional negotiators. Result; all sorts of unreasonable terms that the council signs up to. If the council “negotiators” could suppress their vanity, and hire professional negotiators, there would be much less of an imbalance.
Carillion going bust also impacted the renovations at Waverley station in central Edinburgh. It was a £23m contract awarded in 2017 I think, so they had already been issuing profit warnings before their eventual collapse in 2018.
Whose political pocket was lined???
Here’s what ChatGPT thinks, and it chimes with my experience of a project a few decades ago. Maybe there’s enough here for your readers to start lobbying for change.
Although the Treasury’s Green Book has been strengthened in recent years, key features of the Investment Appraisal (IA) process still risk biasing decisions in favour of Private Finance models (PFI and its successors) over conventional public procurement.
Discounting of Deferred Costs
The Social Time Preference Rate (currently 3.5% for the first 30 years) heavily reduces the present value of future costs. Because Private Finance structures spread capital, maintenance, and financing charges over decades, their long-term costs appear artificially cheap compared with up-front public investment.
Optimism Bias Adjustments
All projects are subject to “optimism bias” uplifts to reflect cost and time overruns. However, reductions to these uplifts are often easier to justify for Private Finance (on the grounds of contractual discipline and private-sector management), while Public Sector Comparator (PSC) projects are left with larger penalties.
Treatment of Risk Transfer
Risk transfer is routinely presented as the main benefit of Private Finance. Yet the valuation of transferred risk is subjective, often exaggerated, and not always matched by enforceable contract terms. This creates a paper benefit that tilts the comparison.
Assumptions About Timing
Appraisals sometimes assume that Private Finance will deliver earlier and more smoothly than the PSC. When combined with discounting, these assumptions significantly improve the Net Present Value of the Private Finance option.
Non-Monetised Impacts Underweighted
While guidance requires qualitative impacts—such as service quality, flexibility, and long-term affordability—to be considered, in practice decision-makers often default to benefit–cost ratios. This sidelines crucial aspects of public value.
Overall effect: The combination of discounting, optimism bias treatment, and inflated risk transfer systematically favours Private Finance, even though experience has shown such schemes to be costly, inflexible, and poor value for the taxpayer.
Recommendation: A swift review of the Green Book is needed to ensure appraisals are genuinely neutral. In particular, the discount rate should be reconsidered, optimism bias rules applied consistently, and claimed risk transfers independently verified. MPs could be lobbied to press the Treasury to accelerate reform, so that future infrastructure decisions are not distorted toward high-cost private finance.
We Own It have a petition on this.
https://weownit.org.uk/act-now/no-new-pfi-in-neighbourhood-health-services
Prem Siika is writing on this theme.
https://leftfootforward.org/2025/09/how-successive-government-have-created-a-new-rentier-economy/
in this he says Since its inception, around £60bn of private money has gone into 700 PFI projects. In return, the government will pay £306bn.
This is corporate theft on scale that would stagger Cortez , Pizarro and all the other conquistadors who sent shiploads of gold to Spain
Thanks
Sent to my MP who is a Liberal Democrat.
Thanks
Methinks you’re being too kind Richard.
From the point of view holding the PFI contracts the scheme has been an enormous success.
The returns are pretty much guaranteed for over thirty years.
My take is that PFI is and has been from the off, an aspect of “syphon economics”, where the public pump in the money and though they do get the service claimed, along the way the rentier class syphon off their cut.
I find it difficult to believe that those politicians involved are naïve, stupid or ignorant. Sadly, I find it all too easy to be cynical and assume that spending too much time schmoosing with people better dressed than them and paid three times their income, it turns the heads of our MP’s.
I’ve been asking ChatGPT to dig a bit more into the use of Investment Appraisals. Here is another extract from the response I got. QED I think. It’s a stitch-up.
“I did not locate a published case study or government decision document in recent years that clearly shows an IA where only public sector delivery options were compared (without any private finance option), and where deferred public expenditure was discounted in the same manner as when a private finance option is included.”