The Public pays for Private Finance Initiatives (PFI) with lives, taxes and income insecurity. So, while the Government point to Carillion’s Board of Directors, for its collapse the Government is equally if not more culpable. For 30 years Tories have been relentless in their message about the inefficiency of public managed services. And the efficiency of private business. So, governments have replaced many services with large companies like Carillion under the guise of ‘efficiency’ and ‘cost-effectiveness’. And what those political principles have created is a welfare state for big business. They go bust and walk away, leaving the ‘inefficient’ public purse to pay.
PFI Models
Reward for business after paying yourself a satisfactory salary is profit. Profit is the reward for taking a risk. Then there is PFI. That is where large private companies take services from the public sector, along with secure jobs. They borrow money to complete projects, at a far higher rate than if the government borrowed money. The government then pays the companies, that far higher rate. So, before, 1990 hospitals paid no charges on their lands or building now they are paying 15%. However, the base rate for borrowing is 0.5%.
And with PFI there is no risk. When the business fails, and Carillion has not been alone, the taxpayer foots the bill.
The PFI Costs
PFI contracts are usually outsourced and then outsourced again. So, Carillion’s collapse also means that their small subcontractors will have to bear losses. And that could include layoffs and financial write-offs, which will affect a firm’s balance sheet.
Nor is Carillion’s failures a PFI anomaly as the government and private markets suggest. Balfour Beatty is Britain’s largest construction firm. It issued seven profit warnings in the space of two-and-a-half years. East Coast Rail failed and was rescued by the public purse, was sold and is again being rescued by the public purse.
The National Audit Office has concluded that PFI is an expensive method of funding. The cost of public projects can be 40% higher and does not necessarily bring any benefits.
Carillion’s services have cost more than money. Carillion ran an NHS clinic where Anita Manis, one of three patients, died after a routine operation. That is in addition to the potential failings in the cases of six patients who suffered irreversible sight loss after treatment. And at another hospital, their food hygiene and standard of cleanliness was slammed.
And yet the process will not change. Theresa May says Public-private partnerships are essential!
No To PFI
Major’s Tory government invented the PFI. New Labour enthusiastically embraced it. It is in all their interests to perpetuate the fraud that they are providing quality services and low spending.
So PFI is a fraud. And it is also wrong because it allows the government to pay profit to companies. But companies should not profit from public services which are a non-profit making natural monopoly. The private sector is all about the free market but the provision of government services are not a free market. That does not mean there is no place for the private sector to provide specialist services. But not the delivery of school meals, guarding prisons and delivering finance for infrastructure.
The government could stop using PFI contracts but that would mean admitting the failure of their ideological policy. And it may impact on what appears to be the Tory Party’s unhealthy relationship with big company donors. At the very least the government needs to stop propping up failing companies. It supported Carillion even when the banks walked away. The government could also remove the limited liability that protects Director’s assets. But the revolving door between business and politics will not allow that either.
When PFI fails the cost is paid in human capital, taxpayer money and cuts to public services. But the Director’s just walk away with their bonuses in the bank. So we need to vote for a government with alternative ideas. Otherwise, PFI will continue to bust and walk away and let the public pay.
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Audio Blog
PFI A ‘Fraud’ Sir Howard Davies
Formerly of the Bank of England says PFI has been a fraud on the people
RBS chairman Sir Howard Davies, says PFI “has been a fraud on the people” RBS was once the one of the biggest players in the PFI / PPP market globally #BBCQT pic.twitter.com/6jpn2UsCph
— Ian Fraser (@Ian_Fraser) 18 January 2018
