There is an excellent article in the Daily Telegraph about the PFI disaster, about which I have been warning from since I started blogging. The public sector will be crippled for a generation by the need to shovel enormous amounts of taxpayers’ money directly into the financiers’ profits – that super profit, in addition to a normal builders’ profit, being split between banks and construction companies.
Gordon Brown takes much of the blame for PFI, but like everything that shovels taxpayers’ cash to big business, all of our major parties have bought into it, or more accurately been bought up by it.
It does not tug the heart strings like the health service, but I came across PFI when in the Foreign Office. We in the British High Commission were paying extremely high private sector rents in Accra for accommodation for an ever-increasing staff, most of whom were visa related. We owned land, and it would have been obviously cost-effective to build our own housing. In fact rents were so high, that the capital cost of building would be saved in well under four years.
My proposal was well received, but I had to then submit to the Treasury a cost comparison between government funding and the Private Finance Initiative. This assumed an opportunity cost on the government money invested at an extraordinary annual rate – about three times the Bank base rate at the time.
Even so government finance worked out far cheaper than PFI – so then an “efficiency factor” was introduced into the equation, from memory of about 12%, which supposedly represented some magical way that private sector management was more efficient than public sector. Just what this was quantifying when build costs, land value, finance costs, opportunity costs and maintenance costs were all already stipulated I have no idea.
In short, the thing was a transparent ideological fix. In fact the efficiency factor was the opposite of the truth, because the PFI route limited us to a couple of particular builders who could organise the PFI, and whose capital cost was more expensive by over thirty per cent than other builders, without the banking hook-up but who could have done the job.
I dropped the project in disgust.
The idea that by giving private companies and bankers huge extra financing profits from public sector capital investment, you can deliver more cost effective public services, was always self-evidently nuts.
PFI is, like the banking bailout, a further example of the way the political class use the power of the state to transfer money from ordinary people to the super rich.