Private Finance Initiative – Or Why We’re All Broke

I’m trying to get back to posting at least something here every day… as my comic shop still has no League, and the Star Trek film doesn’t have much to say about it, you’re getting a politics post.

Before I start, as with many of my posts, this will be wrong in detail. I’m trying to give a broad overview here, so it’s full of sweeping generalisations. If you don’t want sweeping generalisations, don’t read my stuff, look at the wikipedia page for PFI instead…(that Wikipedia entry is being accused of bias at the moment, and I can see why, but it’s just because there really is only one side to this…)

Those of you who are, like me, fans of 1980s Thatcherite sitcom Yes, Minister, will remember one particularly funny episode. In it Sir Humphrey is trying desperately to keep the fact that he made a cock-up thirty years ago hidden, because it was such a momentous blunder that, were it found out who was responsible, he would face instant dismissal.

What he’d done was get a private firm to build an army barracks, so the initial expense would be less, agree to pay the costs over thirty years, then let the private firm own the buildings at the end of that time. A stupid decision, of course, but that satirical decision has for the last couple of decades been the basis of British economic policy, under the name of the Private Finance Initiative.

Now PFI is a boring name, and many people thus gloss over the details of this when it’s mentioned in newspapers, so perhaps a better name for it would be Greedy Boomers Stealing From Their Children. Certainly it would be a more accurate name.

What PFI essentially means is that if you want, say, a new hospital, the government makes an agreement with a private company to build and maintain it. The contract goes over thirty years or so, and then at the end of that time what happens depends on the contracts. The earlier ones, implemented 17 years ago, had clauses which say ownership reverts to the private company I believe, while later ones tend to more sensibly say the government owns them. But we can’t be sure, because the contracts are often ‘commercially sensitive’.

In itself, this isn’t too dreadful in principle, even though it adds a huge (30% or so) overhead to the cost… but principle and practice are two very different things. In practice the PFI is a fast-track to complete economic destruction. Here’s why:

The reason PFI is attractive to governments is that it doesn’t appear on the balance sheets – it’s not money ‘borrowed’, so doesn’t count towards the national debt, but you also don’t have to pay it all at once. It’s like being given a credit card that somehow doesn’t impact your credit rating, no matter how much you spend, so long as you make the minimum payments. This means the government can announce massive amounts of spending without putting tax rates up. I’m sure you can see some of the problems that can come from that.

But that’s not the only problem – PFI often becomes the only method by which funding happens for services, and this can be catastrophic. Take this entirely-hypothetical-and-nothing-to-do-with-any-organisations-I-used-to-work-for-honestly example:

Say you’re an NHS trust, and you have a unit with four twenty-bed wards, but it’s becoming run down – it’s forty years old or so, and it needs work doing. But you haven’t got enough money to do all the work – it’s serious business, after all, renovating hospital wards, and requires serious money. So you ask the central government for funding.

Now, you can’t use PFI for renovations, only for new builds. So the government say “No, we can’t give you money for that, but we can give you an entire new unit as part of a PFI scheme. Of course, you’ll still have to pay a few million up front, and make the rest of the payments on time, but you’ll get a new unit along with a service contract.

So the trust agree to get a totally new building, but they will have to give all their staff a pay freeze for a few years, not even giving them legally mandated raises, to raise the few million they have to pay themselves. And the new unit will have to be smaller than the old one, of course, because the PFI funds don’t stretch that far. But they go ahead because they’ve got no choice…

And two years later huge cracks are appearing in the walls, the lift doesn’t work, the air conditioning’s broken and staff are going off sick, never mind the patients. But you can’t do anything because the company that built it (usually one of the very big construction firms who are very litigious, so I won’t name any, but I’m sure most of you can think of one or two that fit the bill) are also the maintenance people, and they get the money regardless of quality of service.

Meanwhile, while patients are having rain dripped on them from leaky roofs, the government boasts about how much money it’s spent on the NHS. This is why no matter how much money the government claim to be pumping into things, services constantly get worse – the money isn’t going anywhere where it could be useful, but just to enrich already bloated businesses.

And then to make matters worse, the government ‘has to’ keep those companies afloat so they can continue to provide their ‘service’ (because the hospitals belong to the company until they’re paid for), so now, because of the recession, the government is paying billions in bailout money to keep those companies going so it can keep paying them money for providing an expensive, substandard service.

And all this is just because ever since Thatcher got in, just over thirty years ago, the most spoiled, narcissistic, greedy generation ever to have been born in human history has insisted on having the best possible services for itself without paying. Whether this means pulling the ladder up after them for charging for services they don’t need (like saddling the younger generations with debts for attending universities that they attended for free), or just racking up mountains of government debt and postponing paying it off until they are retired or dead, political culture for my entire lifetime has been based on the idea of getting anyone born after about 1956 or so to pay for the rest of their life for whatever their elders want.

We need, urgently, to get rid of the idea that you can have good services and not pay for them – if nothing else because actually being honest about the payments is vastly cheaper and more efficient in the medium-to-long term. Government projects should only be paid for either by direct taxation or by money borrowed and added to the national debt in a proper, above-board manner. Anything else is inviting the kind of financial catastrophe we’re going through now…

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10 Responses to Private Finance Initiative – Or Why We’re All Broke

  1. RAB says:

    Funnily enough I was quoting from that very episode of Yes Minister just yesterday, while watching an interview with Philip Zelikow, formerly of the State Department. When Rachel Maddow pressed Zelikow on how much his former boss Condi Rice had known about the torture of alleged terror suspects, his language became very evasive and abstract — and it reminded me of nothing so much as Sir Humphrey’s tortured mangling of language as he tried to avoid admitting responsibility: “the individual in question is, it may surprise you to learn, one whom your present interlocutor is in the habit of defining by means of the perpendicular pronoun.” Astonishing to see just how relevant that show still is.

    My view of the Trek movie is considerably less favorable than, say, your view of new Doctor Who, though I disagree there isn’t much to say about it: for example there is this

    • Andrew Hickey says:

      Yeah, I’d seen that review before going, but given the absurdly favourable reviews it got from *everyone* else, dismissed it as fanboydom rather than anything else. My basic thoughts are less damning than that, but surprisingly close to it – essentially they got the characters more right than I thought possible, and the direction was surprisingly competent, but the script was just unutterably bad.

    • Andrew Hickey says:

      Actually, Millennium Elephant (and his daddy Richard) sums up my thoughts beautifully here

  2. Excellent post, Andrew. It would be nice if any of the political parties agreed to scrap PFI, but I won’t be holding my breath. Unfortunately, the promise of jam today, however illusory, is a tough one to get over.

  3. When PFI was brought in, one of the ways it was sold was via the suggestion that it’s easier for the private sector to raise money.

    Of course, as many of us said at the time, the exact opposite is true. Countries are less likely to go bust than companies, therefore its quite clearly cheaper for governments to borrow money than the private sector. The lender is taking much less of a risk.

    Now the banks have (almost) all had to be bailed out by the Government, this point has become self-evident to the point of absurdity. Not, of course, that that’s put PFI in any less favour…

  4. Liberal Eye says:

    Well said. It’s a scandal, it’s been a scandal since the outset and still the politicians don’t get it and confuse smike and mirrors with substance. As with expenses in fact.

  5. smartmemes says:

    So regarding Star Trek, you initially dismissed my review as “fanboydom,” yet wound up basically agreeing with it? (IOW, good cast, pretty pictures, godawful stupid story?)

    I’m not quite sure how to take that. Not that I was expecting to convince anyone *not* to see the film and judge for themselves, but I’d like to imagine I made my case at least *somewhat* persuasively. Thanks for reading, anyway…

    (What’d you think of Ebert’s review?)

    On topic, FWIW: the phrase “godawful stupid” certainly also applies to this approach to financing public works.

    • Andrew Hickey says:

      The problem with your review ( no offence intended here) is that so much of it was taken up with continuity-related stuff (understandably given the focus of your site as a whole – and it’s a site I actually have in my bookmarks and visit quite often ) that it was very easy to just dismiss all of it as just continuity nitpicking. As I’m not bothered by Star Trek continuity one way or another, it was very easy to gloss over the good points you did make – especially since a lot of other people whose judgement I have more reason to trust (I don’t know your tastes as well as I know theirs) said it was one of the best of the Star Trek films.

      I’ve not read Ebert’s review…

  6. Oliver Townshend says:

    Well I can’t speak for those done in England, but in Australia we’ve had bad ones, and we’ve had good ones. If Government chooses to do it, part of their job is to ensure a good outcome. Its when Government hasn’t had their eye on the outcome, and are more worried about the cash involved (our State Government would make a cash advance part of the tender) that outcomes are shit. Like government paying for itself, or borrowing, a PFI is just a tool.

  7. Pingback: The Private Finance Initiative: Threat Or Menace? | Hot Liberal Action

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