Personally I’ve always thought that PFI or private finance initiative to be little more than a rip off of the tax payers – all that happens is a private company builds the government something and then leases it back at a greatly inflated cost – why on earth the government doesn’t just borrow the money and build it itself I’ll never know. And anybody who believes that private companies are more efficient is living in cloud-cuckoo-land – every company I’ve ever worked for is riddled with inefficiencies: it’s the nature of people – we aren’t machines.
George Monbiot shows why we’ll be paying twice for the M25.
When Labour took power in 1997, it told public servants that there would be no alternative to PFI. “When there is a limited amount of public sector capital available, as there is,” the health secretary, Alan Milburn, announced, “it’s PFI or bust.” After 12 years, the policy hasn’t changed. A leaked email summarising a meeting with the current health secretary, Alan Johnson, in January this year revealed that “PFIs have always been the NHS’s ‘plan A’ for building new hospitals … There was never a ‘plan B’.” If you apply for public funds, you won’t get them: to build a new hospital or school or prison, you must PFI it.
But the bid still has to show that private finance beats the public sector comparator. As Jeremy Colman, then the UK’s assistant auditor-general, pointed out: “If the answer comes out wrong, you don’t get your project. So the answer doesn’t come out wrong very often.” Some of the public sector comparators used, he said, are “utter rubbish” and “utterly irrelevant”.
How do you produce the right answer? By costing risk the right way. When private companies take on a PFI project, they are deemed to acquire risks that the state would otherwise have carried. These risks carry a price, which proves to be remarkably responsive to the outcome you want. A paper in the British Medical Journal shows that before risk was costed, the hospital schemes it studied would have been built much more cheaply with public funds. After the risk was costed, they all tipped the other way; in several cases by less than 0.1%.
Britain’s PFI rip-offs would make the Camorra splutter into their grappa. A bridge from the mainland to Skye, which shouldn’t have cost more than £15m, stung local people and the taxpayer for £93.6m. A hospital scheme in Coventry was reverse-engineered by health chiefs to attract private capital. The city’s two hospitals were to have been renovated by the public sector for £30m. Instead, they were demolished and one was rebuilt for £410m. To attract backers for the Norfolk and Norwich University hospital, the Department of Health, acting on instructions from the Treasury, left a £95m sweetener in the contract. The companies that built the first eight PFI road schemes in the UK have made average annual operating profits of 68% (all references are on my website). But the worst is yet to come.
Like the hospital in Coventry, the M25 widening scheme appears to have been designed to maximise corporate profits. The Campaign for Better Transport points out that if the whole scheme had used existing hard shoulders rather than building new lanes, the total cost would have been £478m – not £5bn. Like all PFI projects, because the contract is so long and the costs of breaking it are so high, this road widening locks us into existing transport patterns: if in future a government tries to respond to climate change or peak oil by changing the way we travel, it will have to pay a crushing penalty to the companies that enlarged the road. Those perversities are standard. But this scheme gets much weirder.
The government, as usual, is telling us as little as it can get away with. But the Department for Transport has admitted that, to make the project viable, it might have to bail out the M25 consortium. Some reports suggest that to make sure the consortium remains solvent during the construction phase of the contract – which is worth £1.3bn – the government will have to lend it £400m. The European Investment Bank has already pledged £500m – which is also taxpayers’ money. This private finance initiative scheme doesn’t require much private finance, or initiative.
If the government underwrites the scheme, the greater part of the risk will fall on taxpayers, negating the entire rationale of PFI. But, citing higher lending risks during the recession, the banks backing PFI infrastructure projects have increased their margins, in some cases by 500%. The government will lend or promise to lend cheap money to the banks, which will then charge us, through the consortium, stonking rates of interest for the use of our own cash.
Weird enough for you yet? Well, one of the banks reported to be backing the scheme is RBS. The taxpayer now owns 58% of it. This is likely to rise soon to 95%. If the government underwrites the M25 expansion, it will in effect be bailing out RBS twice, then charging itself for the privilege – and for the bankers’ fees, including salaries and bonuses. RBS – in other words, you and me – already has £10bn invested in PFI schemes in this country, for which we are paying extravagant rates. George Monbiot, The Guardian.
I’ve quote too much of George’s article, however, what has happened to the Labour party that it effectively is siphoning off money from the poorest of us and shovelling it into the pockets of very wealthy amoral bankers?
