Thursday, November 27, 2008

[private finance initiative] mechanism for concealing debt

The Spectator, not so long ago, ran this, about the days when Nu-Labour was just coming to power. There was apparently a dinner and Gordo explained himself this way:

As the conversation turned to the inevitable Labour victory, Mr Robinson said how much he was looking forward to turning the government spending tap on again, putting an end to what he saw as the years of Tory parsimony. Mr Davis was bewildered. ‘You can’t do that,’ he replied. ‘You’ve promised to keep within our spending plans.’

The future Paymaster-General smiled broadly. ‘We’re going to do it as capital,’ he said. ‘And then put it on as PFI.’ Davis was understandably baffled. The Private Finance Initiative (PFI) was a controversial, but little-used mechanism established by Norman Lamont to privatise specific construction projects. But it meant something much more to New Labour.

Officially, the scheme could be a beacon for the Third Way: a means of injecting the ethos of the private sector into the sluggish public sector, and an opportunity to get projects completed quickly and efficiently. Unofficially — and this is what Mr Brown grasped from the off, and what Mr Robinson was hinting at — PFI was an incredibly convenient way of concealing the true extent of public debt.

Therein lay the ethics, the agenda and the manner of operation of Nu-Labour. Now, as for what it was meant to do, here is an excerpt from an article on how the PFI related to the NHS:

We began this series by arguing that the private finance initiative, far from being a new source of funding for NHS infrastructure, is a financing mechanism that greatly increases the cost to the taxpayer of NHS capital development.

The second paper showed that the justification for the higher costs of the private finance initiative—the transfer of risk to the private sector—was not borne out by the evidence.

The third paper showed the impact of these higher costs at local level on the revenue budgets of NHS trusts and health authorities, is to distort planning decisions and to reduce planned staffing and service levels.

So, even within its stated purpose, it seems not to have been as efficacious as was first supposed.

H/T Jailhouse Lawyer for yet another fisking of Nu-Labour. Well spotted.


jailhouselawyer said...

James: I get the distinct feeling that the eagerness of the MSM on the PFI Bombshell story, which then suddenly goes very quiet may very well indicate that there is a D Notice upon it.

James Higham said...

It is certainly a sleeper, this one. It might turn out to be quite huge once someone other than minor bloggers like us break it.

CherryPie said...

I am sure you know PFI's are one of my pet projects. They have bugged me for a number of years.

Maybe a smaller or local newspaper would be interested...

jailhouselawyer said...

Check this out James

Andy said...

Um guys, the PFI=ripoff isn't really news. Private Eye for one has been banging on about it for eons and has also brought my (and therefore presumably many others') attention to the new accounting rules which brings PFI back onto the balance sheet.

Having said that, the suggestion that the banks that have been nationalised are the ones that were up to their necks in PFI is news to me but seems to be challenged by one of the posters on the forum you linked to.

Anything more definite?

James Higham said...

From my reading of the various articles on this, and from the reports from the various sectors with PFIs, I'd say you're right.

What is new is that the bailouts appear to be "including" or "containing" them, I hesitate to say covering them up.

This appears to be the real story of the day.