Unacceptable face of captialism

The Public Accounts Committee has rounded on a Private Finance Initiative project for a NHS hospital.

If devolution returns will local parties continue the over-reliance on PFI or will they be prepared to look at the other options of public private partnerships?

  • Rapunsel

    of course they will continue as previously by speaking out of both sides of their mouths at the same time, condemning it on the one hand but stating that they have no option if infrastructure requirements are to be met. It’ll be the same with the water tax etc. Is this not what has happened with the previous executive? PFI is a disaster and a con. George Monbiot explores some of the issues well in his book ” The Captive State”

  • wild turkey

    Rapunsel and others with an interest in the shell game that is PFI

    you might care to check out

    NHS Plc: The Privatisation of Our Health Care
    by Professor Allyson M Pollock .

    Wasn’t there a recent news items that the majority of school builts initiated (4 or 5 years ago?) under PFI have yet to start.

    Theoretically, in this jurisdiction proposed PFI projects should, under section 75 of NI Act (1998), be subject to equality impact assessments. Theoretically this should empower politicians and wider civic society to challenge PFI. Theoretically

    The Strategic Investment Board (SIB) was designated for purposes of section 75 a few years ago. anyone know how many equality impact assessments they have carried out to date?

    i am not aware of any political party here that has critically assessed, on either economic or equality grounds, PFI.

    perhaps i’ve missed something?

  • bootman

    i am not aware of any political party here that has critically assessed, on either economic or equality grounds, PFI.

    perhaps i’ve missed something?

    Posted by wild turkey on May 04, 2006 @ 08:46 AM

    Sinn Féin has just such an anlaysis on their website WT

  • wild turkey

    bootman

    thanks for the info. i’ll check it out.

  • fair_deal

    “proposed PFI projects should, under section 75 of NI Act (1998), be subject to equality impact assessments.”

    I think you are mistaken. An individual decision of saying company X will build Hospital Y is not subject to an EIA just government tendering processes.

    I doubtif there is anything inherently unequal about PFI’s per se in terms of section 75 groups. The bigger issue is how they choose those for direct funding and those for PFI (see below)

    ” am not aware of any political party here that has critically assessed, on either economic or equality grounds, PFI.”

    It would be interesting to do. I have heard a number of complaints by headteachers that the state sector schools are being pushed down the PFI route for new build disproportionately more that the state-supported religious schools with the knock-on effect of tighter resources for the PFI schools in future years. Never had the time to check the story out though.

    The IPPR has done research on their economic value – good for roads and big build projects but others are more economically questionable.

  • Crataegus

    I have real problems with the PFI concept. At a very basic level why should I borrow money and build on behalf of a government when that government can borrow the same money for less. All we are doing is building up future liabilities. How exactly do we accurately monitor value for money, and how do we properly ensure competition. The reality is complexity and transparency just is not there.

    Take a hospital, someone designs it, produces contract documents and a set of contractors tender all fairly clear and easy to check. However with PFIs what you get and how you compare is a lot less clear.

    It is bad enough that consumers have high borrowing but for a government not to properly control its tax and spend is worrying. If we need a hospital we should raise the money and build if we can’t then no hospital. Is that too simple?

    Somewhere we have descended into financial Narnia a world where tax has to appear to be low and expectations remain high. Sooner or later reality must return but by that stage how deep the problem?

  • ab

    Crataegus to give you a very basic answer – the reason you should borrow money and build on behalf of the government is because you are highly likely to make a big fat profit out of it.

  • Crataegus

    ab

    Indeed, but I can’t see the real benefit to society? I can’t see why we should use it?

    From an investment and employment point of view, I have been approached by some people to get involved in these things. I declined, as I can picture my old age spent being interrogated by some enquiry.

    They may be useful in some sectors, but I just don’t see it. If I want to build houses to rent then I get on with it. I don’t go to a letting agent and ask them to put a portfolio together for me that they buy and I lease back when I can cut them out take responsibility and control and accrue all the profit myself.

    I am probably missing some fundamental benefit. There must be something other than an accounting slight of hand? Is the government now so incompetent that it can’t even manage its own building programmes properly?

  • ab

    I don’t know how the system works in NI but in England if you want to build some houses you can do it yourself if you can find and buy a site. You will then need to get planning permission which will involve you entering into an agreement with the LA to build housing for rent as well. So far so good.

    If you want to make money by building hospitals it is more complicated because you won’t own the site in the first place and, unless the hospital is required, why would you do it? In the olden days the public sector did commission buildings and funded it themselves. As a contractor, building a
    hospital, you made your money in the usual way that building contractors do through profit on the building contract. Under PFI you make your money through the profit that is allowed on the building contract and the long term maintenance contract that goes with it – generally for a period of 25 years. This is where real money is to be made. After a few years if you get fed up with running the cleaning services for example you can sell the contract on to someone else.

    You can see why PFI was introduced by the Tories and, yes it was largely as an accountancy sleight of hand to reduce the call on the public purse.

    It is also why the design and built quality of public buildings is so appalling now.

  • Crataegus

    ab

    Building houses is the same here I was just suggesting that it would be insane for me to act like the government with some of its weird schemes.

    I agree the serious money is in the maintenance contracts. Heard some really disturbing reports about a new court house but alas do not have direct knowledge so don’t want to mention details here but if right and if typical I can see future uproar.

  • Alan

    *I declined, as I can picture my old age spent being interrogated by some enquiry. *

    Yes, I remember Edward du Cann tortured in the end by a fancy Tory tax relief scheme for building houses that went wrong.

    My understanding is that PFI etc allows the Gov’t to control the PSBR (Public Sector Borrowing Requirement ) by passing on the risk to the private sector. I’m open to contradiction on this, but I thought that PSBR was restricted by the EU and other international treaties. It’s also best controlled in order not to put the future in hock to the past, and to prevent competitive state borrowing ending in global bankruptcy.

  • DCB

    It’s not an accounting slight of hand. The private sector debt is non-recourse to the government. That means that if it all goes tits up the private sector is left carrying the can.

    Of course what is legally non-recourse is often commercially not.

    However after 10 odd years of PFI we have seen equity being burned but we have yet to witness a major government bail out.

    It’s worth remembering that for every Octagon there’s a Jarvis or Amy. Plus everyone forgets when looking at PFI profits to include the bid costs of unsuccessful bids. Every contractor will only win 30/50% of the contracts they bid on. The bid costs can be massive. It’s not hard to rack up £20m in fees.

    In the early days we used to see more abnormal gains and losses. But with both the public and private sector gaining experience and a liquid secondary market developing the returns are becoming more normal.

    The lending margins on the project finance debt which funds PFI contracts have been slashed in recent years. So the difference between what the gov can borrow at and what the private sector can gear up at has decreased significantly

    However very few PFI deals have been refinanced to take advantage of better credit terms, and that’s because the private sector contractors could not be bothered with the grief of clearing it with the gov, plus the 50% of the gain they have to hand over is a major disincentive.

    Soon PFI debt will be offered direct and unwraped to pension funds, when this happens you will see borrowing costs falling even further.

    Still the IPPR article makes some interesting points. PFI works best on simple build and operate contracts. Toil roads and buildings. However this government is intent on using it everywhere. For more complicated things JVs or outright privatization could be better options.

    Also some government departments are much better at handling PFI than others. DWP is good and the MoD is truly atrocious.

  • Crataegus

    passing on the risk to the private sector.

    Passing on risk are you kidding! You pay for insurance.

    Strange I always consider it a way of avoiding the strictures of the PSBR and tight control of money supply. Basically instead of borrowing or taxing now the liability or cost is spread over the coming decades. Government on the never never.

    It has always seemed to me a baroque method of procurement and as pointed out by DCB it involves consider quantities of abortive work in the private sector, which is passed on. Consider hospitals the alternative way of providing a hospital is to commission someone to design it, put it out to tender and appoint the lowest tenderer. All are tendering on the same brief and it is easy to check. With PFI’s, several groups designing the hospital, comparisons are a lot less clear and if things go belly up after construction well potentially a right mess really. Strikes me as potentially highly inefficient and risky.

    I am probably naive but I prefer simplicity. Easier to check, easier to control, and usually cheaper. I wouldn’t use this process to obtain assets for myself and I still can’t see any good reason why a government should go down this route. There is no magic porridge pot you know! If you want porridge you have to pay for the oats, now you can do your own cooking or dine out on plastic.

    Time will tell.

  • Pete Baker

    In regard to PFIs and the public purse.. there was a dispute about where the cost should be recorded.. My understanding is that it has now been resolved that it must be recorded in the budget as public borrowing – although I’m not certain on what level of the cost must be recorded.