A rare outbreak of unanimity on PFI

Yep. I can’t understand why, now that the Corbyn Labour Party is sufficiently unshackled from the record of the Blair/Brown governments that it doesn’t need to defend it anymore, they aren’t aggressively pushing a bill called something the Health Assets (Fair Return) Measure, which would cap total PFI returns to finance providers at (say) twice the initial capital outlay. Result: instantly improved finances for almost all NHS trusts.

Unfortunately I am a typical American in that I don’t have a clue about how Brit politics works except that it appears, especially since Blair/Clinton, to reflect the same dynamic of representation of the minority who benefit from empire even in the absence of the same. It appears to me that the Labor Party in England suffers from the same neo-liberal corruption that does the Democratic Party here and is having that same problem in getting rid of the bastards. What am I missing?

off the top of my head and without spending all day researching this:

Three questions. Is the extra cost justified? Is there an alternative way of funding these? what would the UK be like without PFI?

The extra cost is meant to represent the cost of transferring risk to the providers. However, I found one case of the government successfully transferring risk which was the rebuild of the National Physical Laboratory. However, what seems to happen in PFI’s is that the providers set up a SPV to manage it, so in the event of profit the SPV remits the profit to the investor companies, and in the event of loss the SPV goes bust protecting the investors. It is a common conceit amongst naive purchasers that you can transfer risk to your suppliers, however if you are big and spending a lot of money then ultimately you always end up carrying there risk yourself. Hence aerospace companies and automotive companies are deeply embedded with their suppliers to manage the risks (e.g. they have adhesives experts even though they do not produce adhesives).

George Osborne clearly found an alternative way of funding Hinkley Point C by agreeing to a massive strike price. The strike price is not evidence that nuclear power is expensive, just evidence that Osborne and Cameron were prepared to pay it. And to repeat, in the event of difficulties it is likely the UK tax payer will be still have to pay. It is arguable whether this contract will represent better value than PFI,

Say what you like about Blair and Brown, they did get a lot of schools and hospitals built. Without PFI Brown would not have been able to perform the slight of hand that allowed him to pretend to be prudent whilst in fact running up massive debts that he could avoid putting on the balance sheet. Whatever you think about Brown’s handling of the debt, it is quite likely that without PFI a lot of new schools and hospitals would not have been built.

One of the main cases against PFI is that they allowed suppliers to make large amounts of money out of the government. In order for that to be a valid argument there would have to be evidence that in non-PFI cases suppliers do not extract large amounts of money from government, and there seems to be a lot of evidence (mainly anecdotal) that they can. So I would contend that the problem is not PFI per se, it is governments inability to manage multi-billion pound contracts without getting ripped off.

Wait, you mean crony capitalism isn’t the best of all possible political systems? Dictatorship of the Lumpen-Capitalists doesn’t result in a glorious future?

Who could have predicted this outcome?

One of the main cases against PFI is that they allowed suppliers to make large amounts of money out of the government. In order for that to be a valid argument there would have to be evidence that in non-PFI cases suppliers do not extract large amounts of money from government, and there seems to be a lot of evidence (mainly anecdotal) that they can. So I would contend that the problem is not PFI per se, it is governments inability to manage multi-billion pound contracts without getting ripped off.

PFI is just a way for the government to borrow money from it’s suppliers, while keeping it off the books. The advantage for the supplier is that they get to lend money at extortionate rates – both directly, and also indirectly through overpriced service contracts. For suppliers it has the additional advantage that it locks in the rip-off contractually – but the real money is in the guaranteed return on capital.

@otpup. I believe that there are several troughs in the UK where if you get your place at the feeding station you can make a fortune. The UK government, spending about 40% of total GDP, is one of them and probably the biggest.

I think the problem for the UK government is that they cannot pay specialists enough to stop them being lured by the private sector, so the government is always facing suppliers with greater depth of specialist and contractual/legal expertise.

Some of the criticisms of PFI e.g. £2,000 for a new sink are nothing to do with the cost of funding, just to do with the nature of the contracts entered into by government which would apply no matter how it was funded.

It isn’t valid to demonstrate that PFI is poor value for money by simply doing a straight PFI/government funding comparison. You have to find a way of measuring whether PFI contracts have less overspend than would otherwise be the case, and whether that justifies the additional funding rate.

Dipper

There are plenty of specialists happy to work for the government (more secure, often more interesting work, public service and so on). What PFI does, along with outsourcing, privatisation etc, is erode the government’s competence in specialist areas. When the security, control over one’s work, sense of public service has gone, why stay? And without in-house expertise, you are sitting ducks for any claim (something that applies to business as well as government). This is an old, old lesson – most sensible states kept some capacity in key areas in house for just this reason from the 17th century.