Taxpayers’ money given to people who don’t pay taxes – oh, the beauty of PFIs
The Guardian, by Deborah Orr
The lesson of the PFI disaster is simple: it’s stupid to engineer a profit when there is not one to be made.
You’d imagine, as the economy continues to tank, as banks continue to reveal themselves as incompetent (RBS and NatWest) or crooked (Barclays et al), as Europe drifts deeper into turmoil, that the two political parties who delivered these conditions might be interested in working out between them what brought matters to this grievous state. But the Westminster setup means they don’t have to do anything so sensible. One of the things that both the Conservatives and Labour love about the first-past-the-post electoral system – maybe even the thing they love about it most – is that they have always got each other to blame.
Take Private Finance Initiatives, under which – across the public sector – taxpayers owe around £229bn for assets worth a capital value of £56bn. Hospitals, particularly, are struggling under a debt burden that obliges them to spend up to a fifth of their income on PFI commitments each year. PFI was imported from Australia as a wheeze under Thatcher, first implemented under Major, enthusiastically embraced under Blair, then under Brown, then utilised yet further under Cameron.
PFIs look much like a concept backed by both parties. Yet, no. Both, when in opposition, were highly critical of them. Both parties are in favour of PFIs when it suits them, and both are against when it suits them. It’s absurd.
In fact, since the 1980s, politicians and the Treasury have considered PFIs the only game in town. It’s easy to see why they were attractive to the Conservatives. The idea behind them is that the state is no good at providing infrastructure or services efficiently, because it is not motivated by profit. In reality, the private sector is even less good at providing certain sorts of infrastructure or services, precisely because profit is all that motivates it. That’s exactly when the public sector has to step in.
Essentially, PFI is a way of introducing an artificial profit motive into public projects, to entice the private sector to get involved. Where does this profit come from? It is provided by taxpayers. PFI can only "work" for the taxpayer if the profit handed to the private sector is equal to the saving made by involving them in the first place. The figures suggest that this is far from the case. And no wonder. Who has to make this difficult calculation? Why, it’s the same public sector that both parties agree couldn’t organise a piss-up in a brewery (though that doesn’t stop either from continuing to insist that they should be providing the entertainments secretary). So the "logic" behind PFI is fundamentally flawed. It simply doesn’t address the problem it’s supposed to address.
Unfortunately for us voters, however, there’s a giant short-term political advantage in PFI, and that’s why both parties are so critical of PFI in opposition, and so fond of it in government. Think of the thousands of times Labour has boasted of the new schools and hospitals they built during their reign, and also of the extra money they were spending on health and education. Sure, we were grateful for these things. But while it’s generally understood that PFIs get upfront capital spending off the government’s books, the even more politically appealing consequence is that, for decades to come, governments will lecture us about how large the health budget is, or how large the education budget is, without ever mentioning that a big chunk is not being spent on health and education at all, but on handing taxpayer’s money to the private sector, through a public sector intermediary, to pay off debt sustained by building in the first place and entering into contracts to "privately" maintain them. Fiendish, really.
Yet it’s even more awful than this. After the financial crash, banks became unwilling to lend money for PFIs, so in 2009 the government began lending the money itself. That’s right. Those "private financiers" were no longer raising their own initial finance, even though they had been safe in the knowledge that they’d get it and much more back in a steady income for decades to come. Thereby, even the pretence that risk was being transferred to the private sector was gone. Needless to say, the Conservatives seemed utterly contemptuous of this absurdity in opposition, but have carried on with it in power, just as the Blair government did.
And there’s more. The main reason why buildings provided and managed by the private sector are indeed brought in more cheaply and efficiently is because they offer ordinary workers (but not managers) considerably lower wages and considerably poorer conditions. So, less of the money available goes to local people, who spend in the local economy, and pay their taxes (or perhaps get tax credits from the government in order to survive), and more of it stays with those efficient profit-makers, to be off-shored by their accountants.
Beautiful. Taxpayers’ money handed over to people who don’t pay their taxes, all so that politicians can look good, while behaving badly, whether in government or in opposition. All part of the reason why the division between the rich and poor grew so huge under neoliberal Blair and Brown, who again milked political capital from their short-termist, posturing idiocy by allowing the private sector to erode wages, and whipping their supporters into a frenzy of admiration of their efforts to "support hard-working families" and "lift children out of poverty".
Yet, astoundingly, bound together as the two "great parties" are in this debacle, neither seem to be in a huge hurry to establish a more honest system of public procurement. There is talk of renegotiating the PFIs already in existence, in order that they may avoid the fate of the South London Healthcare NHS Trust, which this week became the first (probably of many) to have its hospitals taken over by "special financial administration". This coalition move is, of course, entirely the other lot’s fault.
The lesson of the PFI disaster is pretty simple. It’s that it’s stupid to engineer a financial profit when there is not one to be made. The Conservatives argue true neoliberalism would privatise everything, thus making everything efficient. They fail to realise that their great project was rejected by the electorate in 1997, as schools and hospitals rotted. They have not managed to win a majority since.
Further, they fail to realise that even the "compassionate neoliberalism" of Blair and Brown was rejected at the polls. Why? Because it reached the stage when it was borrowing far more money to prop up the private neoliberalism of the financial sector than it had ever been willing to borrow and spend on all those schools and hospitals that needed replacing. And still asking for admiration of its cleverness, as it used taxpayers’ money to clean up the mess.
Yet, weirdly, several years on from the start of a financial crisis that only gets worse, politicians are still asking for credit, rather than shouldering blame. Blair this week declared that he wouldn’t mind another crack at running the country, while insisting that all those hospital PFIs signed up to under his watch, were fab.
You have to laugh.