PFI Disaster 23


There is an excellent article in the Daily Telegraph about the PFI disaster, about which I have been warning from since I started blogging. The public sector will be crippled for a generation by the need to shovel enormous amounts of taxpayers’ money directly into the financiers’ profits – that super profit, in addition to a normal builders’ profit, being split between banks and construction companies.

Gordon Brown takes much of the blame for PFI, but like everything that shovels taxpayers’ cash to big business, all of our major parties have bought into it, or more accurately been bought up by it.

It does not tug the heart strings like the health service, but I came across PFI when in the Foreign Office. We in the British High Commission were paying extremely high private sector rents in Accra for accommodation for an ever-increasing staff, most of whom were visa related. We owned land, and it would have been obviously cost-effective to build our own housing. In fact rents were so high, that the capital cost of building would be saved in well under four years.

My proposal was well received, but I had to then submit to the Treasury a cost comparison between government funding and the Private Finance Initiative. This assumed an opportunity cost on the government money invested at an extraordinary annual rate – about three times the Bank base rate at the time.

Even so government finance worked out far cheaper than PFI – so then an “efficiency factor” was introduced into the equation, from memory of about 12%, which supposedly represented some magical way that private sector management was more efficient than public sector. Just what this was quantifying when build costs, land value, finance costs, opportunity costs and maintenance costs were all already stipulated I have no idea.

In short, the thing was a transparent ideological fix. In fact the efficiency factor was the opposite of the truth, because the PFI route limited us to a couple of particular builders who could organise the PFI, and whose capital cost was more expensive by over thirty per cent than other builders, without the banking hook-up but who could have done the job.

I dropped the project in disgust.

The idea that by giving private companies and bankers huge extra financing profits from public sector capital investment, you can deliver more cost effective public services, was always self-evidently nuts.

PFI is, like the banking bailout, a further example of the way the political class use the power of the state to transfer money from ordinary people to the super rich.


23 thoughts on “PFI Disaster

  • Quelcrime

    I used to know some people at the British Embassy in Beijing. The rents they were allowed to pay for accommodation were far, far in excess of the market rates, but somehow they managed to spend the money. I don’t know what was going on, if the money was being recycled or if some lucky landlords found they had suckers paying their tenants’ rent.

  • NomadUK

    ‘The public sector will be crippled for a generation’

    That, of course, is part of the plan. By crippling it, they render it ineffective, so that they (and the Daily Mail and the Murdoch press (or its successors)) can turn around and say, ‘See? The government can’t do anything!’, and the privatisation process continues to snowball. It really is pretty much the perfect scheme.

    In the meantime, the proles will continue to vote Labour, or Conservative, or even LibDem, and imagine that somehow that’s going to make a difference.

  • Gary Stockdale

    Very good post.

    PFI is just financial engineering. Brown wanted to hide the true extent of state indebtedness. In many ways it is similar to the off balance sheet activities that banks engage in.

  • Clark

    The Telegraph article also mentions a 12 billion computerisation scheme. If we hire programmers at 30,000 per annum, 12 billion buys us four hundred thousand years of programmer time! Have I made a mistake in my maths?

  • Stephen Morgan

    You’re talking about “optimism bias”, the variable number which represents how much cheaper the government option would be, and is added onto the government price to make it look more expensive.

    It’s like the story on the front of the Sun today: rich people horse-whipping the poor.

  • Ruth

    Maybe there’s more to PFI than meets the eye. Money could be creamed off covertly for the state through nominee shareholders etc

  • Derek

    And as Private Eye has often pointed out. The PFI holding companies are often domiciled in Tax Havens.

  • Jack

    NomadUK – you put your finger on it. A hugely passive population who don’t give a damn about anything that doesn’t affect their iPhones/reality TV lifestyle, and who still think party politics are actually relevant.
    .
    Most of out politicians and financiers are simple con-men – and to be fair to them you can’t fault the con-man’s twin creeds. First, it’s easiest to con the greedy. Second, you might as well take a mark’s money before – inevitably – someone else does.
    .
    In my area, PFI involvement in massive (and largely unecessary) school developments has recently involved millions (far more than were estimated, naturally) in an area where we can’t even get our bins emptied regularly. The PFI arrangements read like a con-man’s Xmas wishlist.

  • Roderick Russell

    As Craig says — “PFI is, like the banking bailout, a further example of the way the political class use the power of the state to transfer money from ordinary people to the super rich.” Certainly seems true in “rip off” Britain where government seems to have operated these programs largely for the benefit of the establishment to the cost of the citizenry as a whole. Yet “deregulation and privatization” programs have succeeded elsewhere. These programs did not begin with Mrs. Thatcher (or President Regan); they actually began in New Zealand by then Labour Prime Minister David Lange, and were also carried out quite successfully in several Canadian Provinces.

  • Tom Welsh

    “In short, the thing was a transparent ideological fix”.

    Certainly a transparent fix. It’s the opposite of engineering: you start with the desired answer, and adjust the inputs as needed to get it.

    Ideological? Or just a fiddle, probably very well disguised? I can’t help noticing how many ex-government ministers (and their opposite numbers in the USA) seem to have become filthy, stinking rich since leaving office. No names, no packdrill.

    When I was a young lad in dear old Rothesay, I recall my mother saying, whenever the subject of the local council came up, something like “It’s where the lads get together to give each other contracts and money”. At the national level, one would expect the same thing – but on a vastly bigger scale, and with appropriately sophisticated camouflage and deniability.

  • Tom Welsh

    Thank goodness we don’t have any corruption in Britain, of course. Not like those ghastly Asian countries!

  • Vronsky

    I’m by no means a Monbiot fan but I think he has the right way of it here:
    .
    http://www.monbiot.com/2010/11/22/the-uks-odious-debts/
    .
    You could get the SNP to buy into that Craig – you are now freed and empowered. You’d get a lot of support at conference for a speech along the lines of ‘Fuck ’em, if they play the tables, they must expect losses’. Up and at ’em!

  • mary

    Off topic. Another rip off. Owners of i-phones, Androids etc who take their phones abroad outside the EU capped area, are receiving bills for data roaming for as much as £5,000 for a fortnight’s use!!

  • mary

    Why the furore today? A PS initiative and something to do with Lansley’s NHS disintegration plans? Tory conference coming up? Sassoon was saying this as far back as February.

    ‘Commercial secretary to the Treasury Lord Sassoon announced a pilot project at the Queen’s Hospital, Romford, which will see a team of commercial, legal and technical advisors going in to identify ways of reducing ongoing costs on behalf of the local NHS trust.
    .
    Lord Sassoon said: “PFI contracts are not immune from savings. The launch of this pilot, along with our next round of engagement with industry on a PFI code of conduct, indicates our determination to drive out costs while ensuring frontline services are maintained.
    .
    “It is critical that Government urgently addresses every opportunity for savings across all contracts, no matter how complex they may be. We owe it to the taxpayer to eliminate wasteful practice and gold-plating in contracts.”’
    .
    http://www.hvnplus.co.uk/news/pfi-contracts-under-the-government-spotlight/8611454.article

  • John Goss

    “Even so government finance worked out far cheaper than PFI – so then an “efficiency factor” was introduced into the equation, from memory of about 12%, which supposedly represented some magical way that private sector management was more efficient than public sector.”
    .
    More efficient, yes, like private pension schemes, private dentistry, private education! Thatcher tried to lure me out of SERPS into a private-pension scheme with a £200 bribe. I resisted. Now nearly all those who took the bribe are back in SERPS. Pensioners today have to pay for dentists to try and repair the damage done by their predecessors – something that always used to be free. Tonight I went to language college thinking I might get a reduction now I’m pensionable age. Dream on, John. Pensioners pay the full fee, four times as much as those on other benefits. When I used to go to the same college at the same level ten years ago the class was half-full of pensioners who benefited from reduced fees. Now it’s my turn there’s nothing left in the public pot. Think I’ll study at home.
    .
    Young people, like Clark, will probably have to work into their eighties.

  • writeon

    It seems as if the “class war” is hotting up across the western world. The state, society, and taxpayers are being looted and resources transfered upwards to benefit the absolute top of the social-economic pyramid… before the entire, gigantic, house of cards, implodes.

    Whether this strategy of looting makes any real sense is another story. But as we are on the edge of an economic collapse to rival the Great Depression, we’ll soon find out!

  • mary

    Lord Sassoon is just another who speaks with a forked tongue. This is him speaking in the Lords in Novemmber 2010.
    .
    ‘To wrap up, I emphasise that public/private partnerships, including PFI, will continue to make a valuable and important contribution to our future infrastructure needs. There are more than 670 signed PFI contracts, and the spending review confirmed further new projects, including three maintenance projects and the Nottingham tram extension.’
    .
    http://www.theyworkforyou.com/lords/?id=2010-11-03a.1694.2&s=pfi+speaker%3A24971#g1707.0
    .
    Motion to Take Note
    Private Finance Projects (EAC Report)
    3 Nov 2010
    —–
    Typo in my previous comment s/be A PR initiative and something to do with Lansley’s NHS disintegration plans?

  • Parky

    when the level of taxation becomes so high, and it’s hardly worth working, who will pay for PFI and other myriad schemes then.
    /
    I suspect the extra 12% added to non-pfi contracts is to allow for the cost of brown envelopes stuffed with fifties.
    /
    you have to admire the level of sophistication and criminal innovation for government and establishment fraud. Just what will be the next scheme to rob us?

  • Clark

    I note Mary’s comment regarding excessive “data roaming” charges. This is one rip-off that the public could kill. If we all switch off the encryption on our wireless connections, there will be freely available wireless broadband in all built-up areas. (sp)iPhones and Androids can connect to wireless networks.
    .
    Of course, we can’t switch off wireless encryption if we’re all terrified of getting computer viruses on insecure operating systems like Windoze… Another way that general crappiness serves the rich, powerful corporations.
    .
    Why We Need An Open Wireless Movement:
    https://www.eff.org/deeplinks/2011/04/open-wireless-movement

  • Jack

    John Goss – “Pensioners today have to pay for dentists to try and repair the damage done by their predecessors – something that always used to be free.”
    .
    I was at the dentist a couple of days ago. I’m retired and as I left, the pretty young receptionist asked me if I paid for treatment. Poor soul – didn’t know what she was letting herself in for – and not as though it’s even her fault. “Do I pay? Of course I PAY, my dear – I’m one of those mugs who worked hard and paid taxes all his life – I pay for BLOODY EVERYTHING!”
    .
    To be fair, not actually 100% true – but even though I’m now disabled to boot, I do seem to fare pretty poorly compared to so many of my neighbours – knee-deep in cars, widescreen Sky TVs and smartphones – who effectively retired as they left the school gates.

  • Jack

    Property Developers In London – “And what is PFI by the way?”

    Persistently Fraudulent Inducements – Latin for “My word, don’t our councillors seem to have a lot of new cars, these days?”

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