I’ve done my best at digging around to find out exactly how much we, the people, owe private companies for all the schools, hospitals, prisons and other buildings the current and previous governments have saddled us with, thanks to a policy known as PFI (Private Finance Initiative). The figure I arrived is about £306bn. Or to put it another way, not far off a third of a trillion quid, which I know is a scary way of phrasing it, but then PFI is a very scary idea, so why not?
Let’s start at the beginning: Margaret Thatcher managed to get from the sunrise to the sunset as PM without invoking the demon that is PFI; but then she had access to billions via North Sea oil to squander on tax cuts for the wealthy; she didn’t really need to start shaking the clammy hands of private business in the interests of the people (although given her massive economic mismanagement, had she remained PM further into the 90s it’s safe to say she would have embraced PFI with all handbags blazing). After all, it’s virtually written on her political gravestone: “private sector good; public sector bad.”
In theory it’s really simple: PFI uses private money for major public sector projects. Then a private company builds and owns the facility, which is then leased back to the state, in exchange for regular repayments, which are ‘locked in’ (meaning the deals can’t just be dumped) for many decades. Such a great gift to bequeath to the next generation.
It took the government of John Major in the autumn of 1992 to start the whole thing off in Scotland with the private contract to build a bridge from the mainland to Skye. The then chancellor was Norman Lamont and as he put it, the government of the day, post-Black Wednesday, needed to find: “ways to increase the scope for private financing of capital projects”. Of course PFI was immediately controversial, and Harriet Harman, then a Labour shadow cabinet minister, was critical because she saw it as a backdoor to privatisation. Also a young wannabe economist called Alistair Darling was critical too. What is certainly true is that when the new Skye Bridge opened in 1995 the government had the ferry service stopped and imposed the most expensive toll bridge costs anywhere in Britain. What a great start this was for the bright new future that was PFI, and you’d think that such bad press would render PFI untouchable for future governments. You’d be spectacularly wrong, obviously. Things were just getting started.
Exactly a year later, at the fag end of John Major’s utterly disastrous premiership, the first PFI hospital opened, again in Scotland. Ferryfield House in Edinburgh didn’t cost taxpayers a penny – not at first, and was built for the princely sum of £32m. And then not much later Tony Blair was prime minister and everything was suddenly wonderful, and serene, and things were only going to get better. Then Health Minister Alan Milburn, a few weeks into his new job, ensures that PFI will be the only game in town. “When there is a limited amount of public-sector capital available, as there is, it’s PFI or bust”, he said. And then suddenly everything wasn’t getting better at all, and New Labour started to sound mysteriously like the Conservatives, with perhaps a few centre-left fringe policies thrown in to convince that we indeed are no longer living under the auspices of the Tories. But if that’s the case, why didn’t it feel like it? And PFI proves such a hit with New Labour that a PFI taskforce is created by the Treasury in July 1997. (This itself becomes semi-privatised later. You really couldn’t make it up, could you?) And so popular is PFI with New Labour that by the end of the first Blair term in 2001 210 projects have been signed off, keeping its PFI taskforce office very busy indeed. The cost? £11.6bn.
And after the second Blair term of 2001-2005, the amount of PFI deals signed totals 206, a snip at a mere £12.6bn. Blair and Brown are really getting a feel for this financial deferral game. And by now Blair has clearly had enough of PFI being seen as the big bad beast; so instead he re-christens it PPP (Public-Private Partnership), but it’s less catchy. However, the overriding message was that this was an infrastructure programme that wouldn’t appear on the balance sheet, and that was the crucial point.
Tony Blair left office in the summer of 2007, just over a decade after he first became PM, and what a rousing sign-off he had in the shape of the collapse of the Metronet PPP contract in July 2007, that, according to the National Audit Office, cost taxpayers £410m. (Metronet were responsible for the maintenance, renewal, and upgrade of the infrastructure on various London Underground lines.) As far as bye-bye presents go it was a telling one, and with Gordon Brown now in the hot seat, would the man who zealously pursued PFI deals as chancellor under Blair, allow his new man in charge of the nation’s wallet, Alistair Darling (once a critic of PFI, remember), to go after more of the same? What do you think? Between May 2005 and May 2010 another 227 PFI deals were signed, a grand total of £24.8bn.
As an aside, Alex Salmond’s Scottish governance in the dying years of the New Labour project claimed to have ended the scandal that was PFI, when they merely rebranded it as ‘NPD’ (Non-Profit Distribution), but in fact did little to change to the PFI model, other than the name.
When New-ish Labour were in opposition and led by Ed Miliband, the National Audit Office were scathing in their assessment of the previous 15 years of PFI, with its ‘buy now, pay a lot more later’ ethos. With new man Gideon Osborne in charge of imposing greater debts on the nation, he unveiled his ‘PF2’ programme, which sought to correct the errors of the past and impose a new model of deferred debt, with greater transparency and less waste. Hurrah, how lucky we are.
In the meantime some NHS trusts realised they were on a hiding to less than nothing and were keen to get out of the financial handshakes in any way they could, especially when they saw the sheer cost of the paybacks they’d have to meet. Hexham General Hospital borrowed the money to get out of their PFI deal, when they went cap in hand to the local council for £112m in order to buy their way out of a PFI deal that would have meant their £51m hospital would have cost about £250m by the end of the scheme.
Mark Hellowell from the LSE had a good look at Osborne’s supposedly superior PF2 and concluded: “far from avoiding the ‘PFI mess’ ascribed to its predecessors, the government is taking a route that may lead to another.” And Osborne’s first big toe in the debt pond was the building of a dozen schools in the north east of England at the cost of £160m. In total, Osborne signed 74 PF2 contracts between 2010 and 2014, totalling almost £7bn (presumably with Lib-Dem complicity).
In Scotland in 2016 17 PFI-funded (sorry, NPD-funded) schools were closed because of safety fears after a wall collapsed at one site. 9000 students were affected by this ludicrous state of affairs. It doesn’t matter what you call it, it’s obviously not value for money. And after Osborne’s initial delve into PF2-built schools, he went further to plough £700m into a school-building programme. So far, so appalling. But now, in late 2017, we have a glint of sunlight: Labour leader Jeremy Corbyn has announced his party would break with the past and disown PFI and put the state back at the centre of infrastructure, with rail, water, energy and postal services brought back under government control after years of mismanagement and corruption under the auspices of the free market. Almost immediately, Theresa May announced a further £3bn PFI-funded road programme, as part of a revamped National Infrastructure Plan in December which called on the private sector to finance and deliver at least half of the £500bn of infrastructure improvements pledged by 2021. Another £250bn? Yeah, go on, shovel that on the ever-growing pile of bills for others to worry about.
This was no accident. Almost in the same breath she said: “the free market is the greatest agent of collective human progress ever created.” Wow. Words almost fail me, and so they should you. And her frankly appalling statement seems to forget that because of ‘off-sheet economics’ every man, woman and child is now about £3,500 in debt – thanks to government profligacy. And all of this without any of us ever having to borrow a penny.
I think Jeremy Corbyn’s timely intervention is an important one. Here is a man who can see that there is a ‘crisis of legitimacy’ facing the UK and the way it operates its free markets. Another financial crisis is almost upon us even as the Tories have made a total catastrophe of managing the last one. And at the centre of it all stands PFI; untouched, unloved, but still the go-to deferral scheme as far as free market fundamentalists are concerned.
It’s debt that the government has kindly given to you, me, and everyone else by rewriting the rules in such a way that public serves – our public services – are no longer owned by, or accountable to, the very people who use and fund them. This makes our own government (and previous ones) guilty of nothing less than legalised theft. Only under PFI could a company insert clauses into their contracts that mean changing a light bulb in a hospital cost us £25 a go. Or perhaps it was an NPD or PF2-funded hospital. Either way, we get shafted and the private sector is laughing all the way to the taxpayer bailed-out bank.
Max Webster is the editor of Political Provocateur