22 September 2011

Explaining PFI

Scandals about the extortion of public money by private companies seem to arrive daily, as the decade of corporate governance begins to unravel. The political conclusion is clear: we need to keep the public and private separate.

This morning's news is about the disastrous economics of the PFI policy. Money that was created from thin air in the private sector was loaned to the public sector to build hospitals. Over time the interest on that money will have to be repaid from the public money that is taken from taxation and paid to hospitals to support patient care. The quality of health services will decline so that the financial interests of private corporations can be served. According to Department of Health figures, 22 trusts face bankruptcy because the payments on their PFI contracts cannot be met.

The fact that the PFI contracts the private companies who loaned the money became obvious when they started to be sold in a 'secondary market' - the companies who set them up were selling the income stream on to other investors. Serco has been assiduous in keeping its investors up to speed with the growing concern in government about the disadvantageous PFI contracts entered into by health authorities and the possibility of renegotiation. Dubbed by the Guardian as, the biggest company you have probably never heard of, Serco is all over the public sector, profiting at the public expense.

The PFI deals are just the most obvious example of how the claimed efficiency of private sector arrangements to provide public services were a front to enable the embezzlement of public money. The most charitable interpretation is that corporations and consultants have used politicians' ignorance about finance and about IT to profit at the public's expense.

When the operation of private values and private finance in the public sector has been so devastating it demands one to question why this has happened. The answer appears to be simple greed, the chief motive of the private sector, and which privatisation allowed to swamp the public sector too. Most seriously, we can observe the greed of ministers who foresee their own nest-eggs as directors on the boards of the companies who have destroyed the public interest they were supposed to serve.

1 comment:

  1. PFI's were implemented by Gordon Brown's government specifically as a way of financing capital projects so that they did appear in the national debt.

    It was widely reported at the time (right wing press so you probably missed it) that PFI was an extremely expensive method of financing, rather like using hire purchase to buy a car.

    You can hardly blame efficient private companies who took the opportunity make money at the publics expense just so that Gordon Brown could hoodwink the public and pretend that this money was never spent.