Why we should celebrate the death of PFI
By Jesse Norman, Telegraph
The Private Finance Initiative’s toxic legacy of debt proves there is a better way to improve Britain’s infrastructure.
In the interests of security, the head of North Bromsgrove High School recently asked BAM, the PFI contractor managing the facilities, to price up the installation of three locks and deadlocks to three sets of double doors in the school atrium. BAM’s charge for this was £961.85 in capital costs, and a recurring sum of £49.40 in “lifecycle” costs for the remainder of the contract. There are 26 years still to run on this, meaning a total of £2,246.25.
So the school checked to see how much the job would cost if it organised it itself. The answer was the three locks would cost £85, inclusive of VAT, plus a day’s labour at £150, for a total of £235. That’s a saving of £726.85 up-front, or £2,011.25 over the life of the contract. In other words, the effect of PFI was to make the locks cost 955 per cent more than they should have.
Yesterday, the Government announced the death of PFI as we know it, and this latest example of its horrific costs shows exactly why that is so welcome. The Private Finance Initiative, to give its full title, has been an enormously costly, inflexible and non-transparent way to procure and manage public infrastructure. Started under John Major as a means to draw private finance and expertise into the public services, it expanded tenfold under Messrs Blair and Brown, as “the only game in town”. The result has been a toxic legacy of £200 billion in debt, which will last a generation.
As its former chief executive Lord Crisp recently acknowledged, the NHS in particular has been burdened, with a Maginot Line of huge and expensive hospitals that greatly distort healthcare provision, especially affecting community hospitals. And, irony of ironies, this has come just at a time when healthcare itself is moving towards more flexible models that combine specialist institutions with social care nearer to the home.
It was my anger at the car parking charges at Hereford Hospital that moved me last year to set up the parliamentary PFI Rebate campaign, aimed at making savings for taxpayers, and to press for new models of procurement. A recent analysis suggested that PFI projects have cost the taxpayer £20 billion more than if they were paid for through the Treasury – far more than the likely value of private sector expertise or risk transfer involved. For its part, the Treasury has taken numerous steps to improve existing PFI deals, and has announced £1.5 billion of savings so far. Now it has taken the next step, and announced a full review of the whole issue.