Funny, on reading this article I almost forgot that the last Labour government made great use of PFI projects…

Are there any figures for average annual values of PFI deals in the periods 1992-1997 and 1997-2010?

” Labour criticised the plan from the outset as a form of privatisation (and rightly so).”

Then they wholeheartedly embraced it and took it to levels that the Tories could only dream off.

Looking at the paper “The Geography of PFI” by Steven Musson (University of Reading, 2009) taking Table 1 (and assuming the 1997 figure was split 50/50 between the governments) it appears that:

A) the average annual number of PFI deals under the Conservatives (92-97) was 8.2, and under Labour (97-08) was 53.4.

B) the average value of deals was £0.5bn and £5.5bn respectively.

http://bit.ly/rlVgrx

I take it New Labour’s Neo-Liberal history while in power is being airbrushed out of existence somewhat.

This piece is really duplicitious.

Firstly, I’m no lover of the Tories, but, if the left wants support, then honesty is something that people respect.

Yes, it was the Tories who introduced PFI, however, it was rarrely used when they were last in power. The way it was used pre 1997, it wasn’t really a problem. Under the Major government, any scheme had to be weighed up, and it was determined which form of finance (straight funding or PFI) was the most economical – the rule was that the best option was chosen.

Once Gordon Brown became chancellor, he decided to use PFI as a method of keeping debt of the balance sheet regardless of which method of funding was most suitable.

If the original criteria had been kept, then it wouldn’t be causing any problems now.

As for Labour having opposed it at first, well, as the scheme saved money as it was originally set up then this shows economic ineptitude, when is highlighted even more by their reckless use of it once they were in power.

Just to clarify my second point, I should reword it as:

B) the average annual total of deals signed was £0.5bn in 92-97 and £5.5bn in 97-08.

Ditto everyone else who has made the same point. It was Labour that ramped up PFIs, in order to keep massive debts off the balance sheet and it was the Labour government which imposed on public bodies mandated acts, which could then only be achieved by PFI deals.

I know the term ‘neoliberal’ is a favourite of the left, but with regard to PFI the correct term is corporatism, or economic fascism if you prefer. A lot of these contracts run for 30 years, so we will be cursing the last Labour government for decades to come.

GO FUCK YOURSELF YOU TORY CUNTS

PFI isn’t as bad as its made out. It allows things to be built which otherwise wouldn’t. What is bad is that the private companies manage to run rings round the government in PFI contract negotiations.

But if the thrust of this article is that PFI has outlived its usefulness, it’s probably about right.

There really is no way to deny that PFI financing is an extraordinarily bad deal for the taxpayer. I’ve never been convinced by the argument of the private sector bearing the risks that has been advanced by those in favour of PFI. When any kind of vital infrastructure is used by the general public the risks ultimately are always public. There are a few positives for PFI compared to traditional public procurement, such as projects being completed on time and on budget. Moreover, maintenance of infrastructure continues even when budgets are tight because it is contracted. Whereas, public bodies faced with tight budgets would traditionally cut maintenance rather than reduce their headcount. Quite a strong indication about their priorities.

Many of the social infrastructure projects would simply not have been built other than by PFI. So, it was not a matter of finance infrastructure through PFI or on balance sheet public spending. More like finance it through PFI or don’t build it t all. However, it is expensive and comes down to our obsession with believing that we can have something for nothing. If we want social public infrastructure we need to accept that we have to pay for it. We will still be paying for the infrastructure even though it is off the government balance sheet. PFI really is a poor use of public money and some in the City are quite literally ripping off the public purse. The present government were critics of PFI in opposition. In government, they have signed 34 contracts with a capital value of £1.8bn. Another £5bn worth of deals, including waste recycling plants and hospitals in Liverpool, are in the pipeline. In addition, Michael Gove, the education secretary, has just announced £2bn of deals for up to 300 schools.

The FT had a really good feature the other week outlining what a really poor deal that PFI is for the taxpayer. It is behind a paywall so it is copied below.

After a decade on the House of Commons public ac­counts committee, Richard Bacon is one of the longest serving members of Britain’s parliamentary watchdog for government spending. One issue has bothered him for years.

“I first really began to worry about the private finance initiative back in 2003,” says Mr Bacon. “I ran into an investment banker who said: ‘I like the PFI. It’s good for business. We make a lot of money out of it. But as a taxpayer, it really cheeses me off.’ That rather woke me up. This was not a trade unionist complaining. It was a City fat cat getting fatter on the proceeds.”

Mr Bacon is perhaps an unlikely critic of the use of private finance for public goods. He is, after all, a Conservative – the senior partner in the UK’s ruling coalition government – and his party has traditionally advocated a more limited role for the state than its opponents.

But these days his is just one voice amid a rising chorus of parliamentary scepticism that PFI – which has delivered 700 big items of British infrastructure and services in the past 20 years – is proving value for money. In recent weeks, its practitioners have found themselves accused by MPs from all parties of “ripping off the taxpayer”, making excessive returns and “running a racket”.

PFI works a little like the marriage of a mortgage to a full repairing lease. The public sector decides what type of project it wants. The private sector then designs, finances, builds and operates it – usually on a contract of 25-30 years that includes full maintenance. At the end of the contract, the public sector is handed back the project in full working order. If it is delivered late or over budget, or fails to perform once up and running, in theory the private sector pays.

In the past decade many other countries – including Canada, Australia (which invented it) and significant parts of Europe – have adopted PFI-type approaches. Indeed, it has arguably never been more popular, as countries crippled by debt see it as a way of creating social infrastructure without the need for yet more government borrowing. America is taking an increasingly keen interest.

Why has it proved to be so popular? “For three reasons,” a former Treasury adviser says. “Governments think it transfers risks, and works. Because they don’t have to raise the capital now. And because accounting rules mean it often does not count on the government’s books. You make your own judgment over which is the main driver,” In other words, for at least two of those reasons, governments simply cannot resist it.

Yet in the UK, it has never been more controversial. Since PFI was first devised in 1992, more than £70bn ($114bn) of capital has been raised to provide new hospitals, schools and prisons, new roads and defence projects. These services are being provided now. But payment for them – including their running and maintenance – will cost taxpayers, including children yet unborn, £240bn to 2050. This is equivalent to about one-seventh of current national income.

“The debt will hang over the British taxpayer for decades,” says Jesse Norman, another Conservative MP who is critical of the way it has worked.

It has also, he notes, “created great private fortunes”. Figures from the National Audit Office suggest that at least £2.8bn, and quite possibly more than £4bn, has been paid in fees to financial consultants, lawyers and others to get the projects off the ground – £4bn being the equivalent of building costs for eight large new hospitals. The head of one big PFI investment fund earned £8.6m last year, more than the chief executive of Royal Bank of Scotland, one of Britain’s biggest banks.

So has the private finance initiative vastly improved the UK’s social infrastructure at a price well worth paying? Or is it, as its harshest critics, claim, “perfidious financial idiocy”?

After all, private borrowing costs more than government borrowing. And while any government borrowing would be written off if the school or hospital were no longer needed, under PFI the taxpayer would also have to cover the lenders’ anticipated profit. So once a PFI contract is signed, it is almost impossible to get out except at enormous expense.

In theory the transfer of risk, and the efficiencies gained, more than pay for the extra borrowing costs. But these are not small.

According to David Metter, chairman of the PPP Forum, the industry’s trade body, private borrowing for PFI has over the years cost on average only about 2.2 per cent more than government borrowing. Calculations by the Financial Times suggest that, on the £53bn capital value of current PFI projects, that translates to the taxpayer having to pay £20bn-£25bn above the government borrowing rate – the equivalent of 40 or so big hospitals. “You need an awful lot of risk transfer or efficiency gain to make that worthwhile,” Mr Bacon says.

We will probably never know for certain whether the theory works in practice. For PFI contains one other element that has attracted governments around the world. Because the borrowing is private, it often does not formally count as public borrowing. So it makes public finances look better, which means that for a host of projects – hospitals and schools, prisons, waste recycling projects and much else – PFI has been “the only game in town”, according to people on both the public and private sides of these deals. Practitioners readily admit that projects have at times been distorted to ensure they stayed off the government’s books.

As a result, as parliament has been told by Amyas Morse, head of the NAO, “we simply do not have the data” to do a comparison between PFI and conventional procurement. Leading figures from the industry concur.

Two things can, however, be said with some certainty. First, without the off-balance-sheet financing, this vast array of new infrastructure would not have been built. The last Labour government, which left office in 2010 after 13 years in power, was simply not prepared to borrow to fund it. Second, at least part of the PFI theory has worked.

Unlike much conventional procurement, PFI has overwhelmingly delivered to time and to budget. When it has not, the private sector rather than the taxpayer has almost without exception met the bill. Over the years, John Laing lost £68m when designs for the National Physical Laboratory proved unbuildable; £100m was lost on Dudley hospital in the West Midlands; and, when the PFI constructor and service company Jarvis went bust, the costs fell to the banks not the public.

PFI contracts, however, have proved very inflexible. It is not just the many tales of £1,000 charged to move a plug socket, or £900 to install a Christmas tree in the Treasury. It is that significant changes in use have all too often proved hugely expensive, making it costly to adapt to changing needs. Sir Peter Dixon, former chair of one of London’s biggest hospitals, complained to parliament that under the contracts “we just had to cough up”.

Furthermore, some of PFI’s virtues have suddenly become vices. Hospitals were built on the assumption of rising health spending and growing business. But spending is now flat for four years, and care is being shifted out of hospitals and into the community to save money. As a result no fewer than 22 PFI hospitals spend so much of their income on fixed PFI payments – up to 18 per cent – that they no longer look financially viable. The health department is almost certain to have to take some of their debt on to its books.

Equally, the idea that the public sector should not skimp on maintenance, running up much bigger bills for later, is a virtue in a normal downturn. But, amid the biggest spending cuts in decades, that has produced “an insane situation”, according to Austin Mitchell, a Labour member of the Commons public accounts committee. “Virtually every other area of spending is being cut, but the return for PFI investors just comes in guaranteed.” It is, he says, “a racket”.

That has produced demands, led by Mr Norman, for a “rebate” on the deals. But this is not on the cards. First, the private sector refuses to re­open long-term contracts voluntarily signed on agreed terms. Second, the ownership of contracts has become vastly complicated as investors have sold their stakes, both to take their profit and to recycle the cash into other projects.

Pension funds, including local authority ones, now own significant parts of the equity and the debt in PFI because the long-term nature of the payments matches their long-term liabilities. In many cases arranging a cash rebate, in the unlikely event that the requisite 20 or 30 people could be gathered in the same room, would look like robbing Peter’s pension to pay Paul, the taxpayer.

Hence the Treasury’s recent search for operational savings instead. Many of these, however, involve cuts in services, such as less frequent cleaning; the public sector taking back risks; or the “mothballing” of facilities that will still have to be paid for.

The repeated sale of PFI stakes has brought other problems. “People just do not like the idea that their local school or hospital is being bought and sold over their heads, with people making money out of that when services are suffering,” Mr Bacon says.

According to the NAO, the holders of equity – which typically makes up some 10 per cent of the finance – have looked for returns of 10-13 per cent a year for their risk. And while there have been some losses, there have also been big headline gains of 60-80 per cent and more when stakes have been sold. Added to that, ultimate ownership of at least 90 projects has been moved offshore, potentially avoiding tax payments when they are sold on again. The taxpayer shares none of these gains.

Egged on by the NAO, which says there is a case for sharing excessive profits, MPs are up in arms. A recent ComRes survey of 158 MPs for Westminster Advisers shows 71 per cent believe such gains should be shared – including more than half of Tory MPs.

“The private finance initiative was, of course, a learning curve,” says Margaret Hodge, Labour chairman of the public accounts committee. “But it has echoed down the years to the repeated sound of the Treasury slamming the stable door after the horse has bolted. It took years to ensure that the public shared in refinancing gains; years to try to build more flexiblity into the contracts; and now we find the private sector making big equity gains in which the taxpayer does not share. It repeatedly feels like a rip-off.

“There is a role for private finance. We just have to find a better way to do it.”

“The government must learn from the neoliberal mistakes of Major”

…and Blair, and Brown, and all of the NuLab cabal who happily made them too. This article is a biased, misleading, partisan, duplicitous piece of shit.

@10,

“PFI isn’t as bad as its made out.”

Oh yes it is.

” It allows things to be built which otherwise wouldn’t.”

Only because of the rules put in place to establish PFI, which prevented other ways of financing being used.

” What is bad is that the private companies manage to run rings round the government in PFI contract negotiations.”

That is true, but it is due not only to the ignorance of the public sector workers, but also to the inherent flaws in the PFI model.

“But if the thrust of this article is that PFI has outlived its usefulness, it’s probably about right.”

It was a bad idea from the start as far as tax-payers are concerned. It was a good idea for corporations, which have used it to make a huge amount of money.

Rick:

“But if the thrust of this article is that PFI has outlived its usefulness, it’s probably about right.”

Nope, the thrust of this article is blaming the Tories for Labour’s neo-liberal nonsense.

I’m no Tory, but this article is stunningly misleading.

Yes, the Tories invented PFI.

But the use of PFI exploded post-1997 due to ideological (private sector is better than public sector at managing projects), political (keep headline debt low as demanded by the electorate while financing the massive investment demanded by the electorate while keeping taxes low as demanded by the electorate) and naivety (belief that risks would actually be transferred to the private sector) reasons.

Understanding is hardly improved by pretending PFI is all Major’s fault.

The one argument made for PFI that holds any importance is that it shifts the focus during design and build towards the whole life cost of maintaining the building.

This counteracts a big problem in the construction industry in which the client in the first instance wants a building built as cheap as possible – and so ignores that the eventual occupier wants a building as cheap to maintain as possible.

It is a valuable aspect to PFI that is not very well explored in the report. There are no figures on the maintenance levels in PFI built public buildings and non-PFI equivelents.

Until this is addressed we can’t know if PFI works or not. After all, criticising a system that is meant to push up initial costs for pushing up initial costs is clearly nuts.

and in this report the only examination of whole life costs says some wishy-washy stuff about design standards (nothing to do with whole life costs) and offers a couple of randomly selected petty examples of poor maintenance (a single lift not being fixed is hardly the bases on which to judge hundreds of billions of pounds of public investment.

The biggest concern though is this – we have a government that has abandoned any interest in whole life cost in new builds, and a government that is cutting maintenance budgets everywhere (masked in part by merging them with capital investment figures)

This means we could see the PFI debate shift in the next two years. Long term contracts have to be honoured – so a PFI hospital’s maintenance is secure. Cutting maintenance at a non-PFI hospital can be slashed – so it is not.

We could see the costs thus reverse as non-PFI buildings basically go unmaintained (building up even worse whole life costs for the future)

none of which is proof PFI is value for money – but it raises questions about “proof” it is not.

Paul re comment 9:

Leaving your angst aside, do you have anything to say regarding the article or comments 1 to 8 which preceded yours?

http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/budget2010_supplementary_material.pdf.pdf

This is where I come from and I can tell you the people are not happy…..

WELSH hospital which cost £66m to build will end up costing taxpayers more than £300m, the Western Mail can reveal.

The size of the eventual repayments on Neath Port Talbot Hospital can be revealed for the first time today as one of the biggest of all Wales’ Private Finance Initiative (PFI) schemes.

Information compiled by National Assembly officials and passed to the Western Mail shows that the capital value of such projects has now passed £1bn.

PFI, under which private contractors build schools, hospitals and roads which are then paid for over decades by public authorities, is hugely controversial. It was launched during John Major’s premiership, but was embraced enthusiastically by Gordon Brown during his 10 years as Chancellor.

Mr Brown favours PFI because the capital costs do not have to be financed by public borrowing. That means that until a recent change in accounting methods, the cost of projects did not have to be included in Britain’s public sector borrowing requirement. Critics maintain this distorts any evaluation of the UK economy.

Opponents have also pointed to the high eventual cost of many PFI projects when repayments by public authorities are taken into consideration.

In Wales, a much more cautious approach to PFI has been adopted by the Assembly Government, and the One Wales coalition deal between Labour and Plaid Cymru has banned any further PFI schemes in the NHS.

The ban does not apply to other kinds of projects, however. This week Rhodri Morgan said the Assembly Government would evaluate business cases proposed by councils for PFI schools, for example, on a case by case basis.

The lukewarm approach of the Assembly Government towards PFI has led to criticism that Wales is missing out on important projects that would go ahead in England, where PFI is still a preferred means of building new hospitals and schools. The Assembly’s finance committee recently launched an inquiry into whether PFI schemes would represent value for money in Wales.

A document produced by Assembly officials shows there have been 42 PFI projects in Wales so far, with a capital value of nearly £1.1bn. The biggest such project is the Second Severn Crossing, built before devolution in the early 1990s at a capital cost to the Department of Transport of £331m.

Projection for future repayments on schemes currently approved in Wales show they will reach a peak at £101.5m in 2022. Annual repayments currently stand at £77.4m, of which £34.1m is in respect of local authority schemes, £20.5m schemes funded by NHS Trusts and £22.8m schemes directly funded by the Assembly Government.

After a rise in repayments until 2022-23, they taper off to a total of £11.1m in 2033-34. Further repayments will have to be made, of course, if new schemes are approved.

Altogether, public bodies in Wales are currently committed to making repayments totalling more than £2.5bn by 2034.

Figures comparing the capital costs of certain schemes with the total repayments show St David’s Hospital in Cardiff will end up costing taxpayers 7.7 times its original cost. The much vaunted Neath Port Talbot Hospital will cost nearly five times its capital cost, while an energy management project at Prince Philip Hospital in Llanelli will cost 6.7 times as much.

Plaid Cymru AM Leanne Wood, a fervent opponent of PFI, said, “PFI can be very tempting, but the fact is that it places a huge financial burden on future generations.

“I’m against it for two reasons – firstly because I strongly believe that public services should remain in the public sector, but secondly because it makes no financial sense.

Read More http://www.walesonline.co.uk/news/wales-news/2007/10/29/costly-legacy-of-pfi-projects-91466-20023480/#ixzz1Vbec5gOm

As has already been said many times, Labour were the biggest users and abusers of PFI and wasted billions of pounds on the schemes.

I can hardly believe the bare-faced cheek of a Labourite then writing an article rewriting history to say Labour have always been against PFI and it was the nasty tories who were behind it all.

More proof, if ever I needed it, why you can never trust a word Labour says.

The main point of the article is not about who was responsible for PFI – it is about scrapping PFI. Responsibility for PFI implementation is a brief side point. Please focus on discussing the actual point of the article.

@20

The first paragraph of the piece is blaming the Conservatives for it. The penultimate paragraph uses the phrase “the neoliberal mistakes of Major”. So it’s pretty obvious that your attempt to play the blame game runs right through this piece.

At no point do you recognise that the, relatively limited, use of PFI under Major was far, far less problematic than the real culprits, the last Labour government, who wasted billions of pounds on them. I have no reason to like John Major but his government used PFI fairly judiciously and without any significant problems – the exact opposite of the Labour party which you claimed “opposed PFI”.

On one final point, even if everything you have to say about the problems with PFI is true, why should anyone believe you when you started your piece with such a great fat lie?

Time:The Best Pictures of the Week, August 12 – August 19

Yes, Labour used PFI more than the Tories did, having been in power for 13 years of the 19 that have elapsed since the scheme was first thought up. Both parties used it and did so for the same reasons. Now that we’ve established this and all agree, can we start discussing the substance of the article, rather than acting like schoolboys with all this “your lot invented it!” “your lot were worse!”, “your lot smell!” nonsense. For some of us, it isn’t all about whether Labour or the Tories are better.

Personally, I reckon PFI has always been indefensible. It’s led to the government paying massively inflated prices for substandard products. It’s also indefensible if you subscribe to the “don’t want to store up debt for future generations” argument that’s wheeled out to justify slashing university funding, cutting benefits and sacking nurses, police, teachers, etc.

PFI is a scam designed to siphon billions out of government funds into the pockets of the super rich economic elite. Other comments have pointed out real examples where PFI projects end up costing us and future generations many times what direct government investment in infrastructure would have cost.

The worst thing about the article is the sickening partisanship. The UK has been ruled by hardline neo-conservatives for more than 30 years. Gordon Brown was responsible for the vast majority of PFI projects, blaming the Tories for turning on the tap of government funds to fill the private sector bath is lunacy when new labour smashed the tap off completely.

The worst thing about Labour’s attitude to PFI is that when the Tories invented these mad neo-con economic alchemy schemes they vocally opposed them but as soon as they got into power they rolled out far more of these ripoff schemes than the Tories would ever have hoped to get away with.