Entangled Alliances

From the World This Weekend, news that the government is considering bailing out Private Finance Initiative projects (listen again). As Vince Cable from the traditionally PFI-sceptical Lib Dems pointed out, this would, even more so than the existing arrangements, transfer virtually all the risks to the government and all the benefits to the private companies (Serco, Capita, etc.) who run the scheme. Even the Tories are jumping ship, with their man on the programme (didn’t catch his name) saying that the government should reconsider more traditional avenues of funding.

PFI always seems to have been driven more by ideology than pragmatism, a dodgy accounting exercise to keep debt off the public books rather than a true way to get the private sector to finance public projects (as it has been framed). The idea that private companies would pay for railways, hospitals, and schools would be nice, but of course it’s intellectual infantilism to suggest this is more than rhetoric.

It’s very expensive, as not only do the private companies have to earn profits from the work they carry out, but they also borrow at commercial rates – much higher than the rates the government pays. In addition to this are the fees paid to lawyers and consultants to write contracts and oversee the projects. The Statistics Commission says that the total cost of PFI (as opposed to more general capital expenditure under the scheme) was only £5bn from 1997-2005, although this doesn’t seem to take into account the aforementioned costs of lawyers and consultants. It also doesn’t include disasters such as the London Underground PPP scheme, which in that report was heading towards costing £1bn to the taxpayer – and that that doesn’t include the cost of the collapsed Metronet. The statistics are even more difficult to read because they don’t suggest what portion of the (then) £48bn cost of PFI schemes was due to cost overruns associated with the fact that the contractors frequently had little or no liability. The ‘commercial sensitivity’ of PFI/PPP contracts means that they’re exempted from Freedom of Information laws, hence the cost is anyone’s guess: £29bn? £73bn? £110bn? £157bn? £216bn?

Possibly a greater cost comes from the lack of accountability and flexibility it gives to those institutions which take part in PFI projects. There are plenty of stories of leaky roofs and impractical designs, small changes to plans or existing building structures which incur hefty and disproportionate fees.

One of the best examples, however, is the Skye Bridge, one of the first PFI schemes built by the last Conservative government in 1992-95. On opening, this bridge connecting the Isle of Skye with the mainland became the most expensive road in Europe, with a round trip costing £11.40 in 2004 for a one-mile crossing. Additionally, the ferry operators were decommissioned so there was no choice for people to use alternatives. By the time it was bought back in 2004, the £15m bridge had cost the taxpayer £93m. George Monbiot has more here.

Another similar example is the Rolling Stock Operating Companies (or ROSCOs), which lease trains to UK rail companies. There are three such ROSCOs, owned respectively by HSBC, RBS and Abbey National. When the railways were privatised in the early 1990s, passenger trains were sold to these companies (in many cases for significantly less than their real value), with the intention that it would create competition for leasing trains to train operators. However, many of those same operators have complained that what has been created is no more than an oligopoly – and in some cases, a monopoly, as some trains are owned exclusively by cetain ROSCOs.

If you need any more examples of crappy PFI contracts, pick up a copy of Private Eye. Incidentally, to pre-empt one argument, I’m not suggesting that PFI hasn’t been used to do good things. Of course it has – the shiny new hospitals and schools across the country are a testament to that fact. But did they really need to be built in such an expensive, poorly conceived way?

PFI did have some benefits: it served to act as a clever marketing tool with which to sell increased investment in public sector facilities to the public, without a commensurate increase in either taxes or public borrowing. But it seems little more than that. And, of course, the public aren’t stupid, so it probably hasn’t even achieved that first aim.