Continuing previous thread ….
Public Finance Initiative (PFI) projects are more expensive than using public money because:
- In a PFI project money has to be raised in the financial markets – the cost of private borrowing will always be more expensive (typically 1.5% above bank base rates) compared to government money raised with bonds and gilts.
- In a PFI project the private company will additionally need to make a profit. This profit is of course not applicable where projects are managed and funded by public bodies.
- Projects funded under PFI have higher arrangement and setup fees. PFI deals are complicated; considerable amount of money is needed to pay for arrangement, brokerage, insurance and consultancy fees which are simply not needed in conventionally funded projects.
Enron managed to fool the world keeping many of its liabilities off the books – when they were found out their business collapsed. This government has been piling up debt to the nation that is similarly “off the books”. The very large off-balance sheet debts now need to be added to the money the government has spent on bailing out the banks.
This government led us into one of the longest recessions in recent history. Its reliance on complicated financial instruments such as PFI, trust in the power of the City and trust in using market forces is increasingly putting the government’s competence into sharp relief.
We can’t go on like this…