THE RICHARD J MURPHY YOUTUBE CHANNEL
DEBATE AMMUNITION
LABOUR, PFI AND FINANCIAL ILLITERACY
Funding the Future | June 2026
TODAY'S TOPIC
Why PFI for New Towns is Fiscal Illiteracy
Watch the video this Debate Ammunition relates to here.
THE CORE ARGUMENT
Rachel Reeves is considering using a revived Private Finance Initiative to fund Labour's new towns programme. This is not fiscal prudence; it is fiscal illiteracy. PFI forces the public sector to pay private contractors between 12 and 15 per cent a year for capital that the government could raise at 4 to 5 per cent, creating an entirely unnecessary and enormous transfer of wealth from taxpayers to private investors, and burdening new communities with debt for thirty years or more from the moment they are built.
KEY STATISTICS
| Statistic | Figure |
|---|---|
| Total value of assets built under PFI | ~£60 billion |
| Total projected cost of those assets once all payments and service obligations are met | ~£310 billion |
| Cost premium of private finance over public borrowing, as estimated by independent review bodies | At least £200 billion |
| NHS hospital building funded via PFI, projected to cost up to | £13bn built; up to £80bn total cost |
THE ARGUMENT STRUCTURE
| Step | Argument |
|---|---|
| Step 1 | What PFI actually is: A private contractor builds an asset for the government, then rents it back for up to 30 years, maintains it exclusively, and charges the government for every repair, adaptation, and service throughout the contract period. The government may only buy the asset at the end. |
| Step 2 | The cost is exorbitant and the risk transfer is an illusion: PFI contractors require a return of 12 to 15 per cent per year; the government's own cost of borrowing is 4 to 5 per cent. The supposed transfer of risk from the state to the private sector has been described by the Office for Budget Responsibility as a fiscal illusion: governments cannot allow schools and hospitals to fail, so they end up paying regardless, as the Carillion collapse in Liverpool proved directly. |
| Step 3 | The record of PFI has been condemned without exception: Around £60 billion of assets were built but will cost approximately £310 billion in total, which is five times their value. The National Audit Office, the Public Accounts Committee, and the House of Commons Treasury Committee all condemned PFI without qualification. Even the most trivial maintenance tasks became extractive: one head teacher faced a £100 charge to replace a single light bulb under his PFI contract. |
| Step 4 | There is a straightforward alternative: Modern monetary theory explains that the UK government, as the issuer of sterling, can always fund its own investment directly, provided the real resources exist to undertake it. Reeves has boxed herself in with fiscal rules that treat investment borrowing and current spending as equally bad; she must reform those rules and fund new towns through direct public investment at the government's own cost of capital, not at rates three times higher demanded by private contractors. |
THEIR ARGUMENT → YOUR REBUTTAL
| They Say | Your Response |
|---|---|
| PFI brings in private investment that the government cannot otherwise afford, freeing up public money for other priorities. | This is precisely backwards. PFI does not save public money; it commits vastly more of it over a longer period, at a rate of return three times higher than the government's own borrowing cost. The government is not saving anything. It is choosing to pay the most expensive possible price for something it could fund more cheaply itself. |
| PFI transfers risk to the private sector, protecting taxpayers from cost overruns and construction failures. | The OBR has called this a fiscal illusion. Governments cannot allow hospitals or schools to fail, so they pay regardless of what any contract says. The Carillion collapse in Liverpool is the proof: the hospital sat incomplete for years, the people of Liverpool suffered, and the public picked up the consequences. The risk transfer is theoretical; the excess cost is entirely real. |
| This is a modern version of PFI, a PPP or regulated asset base model, which is fundamentally different from the old schemes. | The label is new; the mechanism is identical. Private capital is raised at 12 to 15 per cent, public services repay it over 30 years, and the taxpayer ends up paying five times the value of what was built. Renaming PFI as a public-private partnership does not alter the arithmetic. Every serious review of these arrangements across three decades reached the same conclusion. |
| The government's fiscal rules require this approach; there is simply no alternative way to fund new towns without breaking those rules. | The fiscal rules are not laws of physics. Reeves wrote them and she can reform them. The appropriate distinction is between borrowing for investment and borrowing to fund current spending; any accountant will tell you these are different things. She is choosing to avoid that distinction, and she is paying for that choice by condemning future residents of new towns to thirty years of unnecessary private debt from the day they move in. |
THE ONE-LINER
“Using PFI to build new towns is not fiscal responsibility; it is fiscal illiteracy dressed up as prudence, and it will condemn the people who live in those towns to thirty years of unnecessary debt from the moment they arrive.”
FURTHER READING
| Title | Date | Relevance |
|---|---|---|
| The curse of PFI | Sep 2025 | Murphy's video analysis of Wes Streeting's plan to revive PFI for 200 NHS health centres; sets out the same cost and risk arguments that apply directly to the new towns proposal. |
| PFI is back – and it will be at cost to us all | Sep 2025 | Provides Scottish Parliament data showing North Ayrshire Council will pay £440 million by 2038 for schools built for £83 million; confirms the pattern of five-times-cost repayments as the norm rather than the exception. |
| Is Labour planning to do PFI again? | Jul 2024 | Early warning piece in which Murphy identifies the risk that the new Labour government would revive PFI-style financing; establishes the core argument against it and explains why it represents false accounting. |
| The PFI disaster | Aug 2024 | Murphy discusses a podcast recorded for The National newspaper on PFI's legacy; covers the structural reasons why PFI fails to deliver value for money and the continuing cost to Scottish public services. |
| After fifteen years of my saying PFI does not work the NAO finally agrees | Jan 2018 | Documents the NAO's finding that private project financing costs up to 40 per cent more than government borrowing; provides the official audit authority's confirmation of Murphy's long-standing critique. |
| Fiscal rules are as flexible as rubber bands | Jul 2025 | Explains why Reeves' fiscal rules are arbitrary political choices rather than economic constraints; directly relevant to the argument that PFI is being used to evade rules the Chancellor herself could simply reform. |
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