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.
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Buy Now Pay Later for Public Services

The number of times Gordon Brown has invented funding schemes which would make goodies available now to be paid for by our poor cash-strapped children has made me wonder whether he shares my view of the inevitability of collapse of this riotous financial system we are struggling with - and that was before the near-collapse of Northern Rock.

First there was PFI, in order support which you would have to believe that corporations would cheerfully pay for us to have hospitals and schools now, on the cheap, out of the goodness of their hearts. Then there was the International Finance Facility, which funded 'development' in poorer countries along similar lines. The latest is the vaccination scam, that not only leaves debts for future generations but also lines the pockets of the big pharma corporations.

Unison Scotland have produced a report (http://www.unison.org.uk/acrobat/atwhatcostoct07.pdf) detailing the costs of some of these projects and making it clear how horrendously we have been ripped off by a policy that never amounted to more than jam today at the cost of horrendous debts tomorrow.

According to the report, Scottish PFI/PPP contracts could be costing around £2.1 billion more than conventional funding. The NHS in Scotland is now having to pay rent to the companies that built the hospitals of some £2.4bn. ‘UNISON Scotland’s analysis of official figures from 35 schemes found that estimated public sector comparators (PSCs) were 6.4% (median) cheaper than the contractors’ bids. For just these 35 schemes, that means almost £720m is being wasted - nearly enough to pay the whole of the PFI bill for Wishaw General Hospital.’


In 2006 a report by the Centre for International Public Health Policy at Edinburgh Unversity, found that the debt for the NHS will be far greater than the investment provided by PFI schemes: £2.4bn. compared with £602m. No prized for guessing where the difference has gone.

What is the cost of this to the private sector? They usually argue that the vast sums we pay are to underwrite their risks (there’s that word again), although the risk involved in building a hospital for an ageing population for which you have no shortage of demand and a single captive customer can never have been that great can it?

But in fact we are paying for the risk involved in these contracts – to the tune of £3.5bn. for an insurance policy in case anything goes wrong. And of course if anything does go wrong, as in the case of the tube and the nukes, we know who will really end up carrying the can.

The dubious scheme is being expanded countrywide. Mark Hellowell and Alyson Pollock, authors of the report, estimate that the annual cost to the NHS will rise from £107.1 million in 2005/06 to almost £500 million within the next five years. The mystery about how so much extra spending on health has achieved so little appears a mystery no more. Tweet