The alternative to PFI is to fund public infrastructure using government’s reserves or money borrowed on the international markets, e.g. government gilts and bonds.

Responsibility for ensuring that money is spent efficiently needs to remain with our elected government leaders. Elected leaders, departmental managers and directors need to get on with the job they have been paid for. We need to build up the competence and skills in these areas to ensure that we are able to specify, negotiate and project manage the infrastructure we need building. In my experience within engineering the key is having excellent specifications with lots of consultation with the people who will use the thing we are buying, good negotiation and project management. These skills must be found and developed in the public sector.

No more PFI projects should be agreed from now. What about existing PFI schemes? Existing PFI should be very gradually bought back under public ownership. This would need to be on a case by case basis. The Skye Toll Bridge is a good example where this has already happened.

In PFI projects, where it is too costly to buy the assets back, the government should bring back the sub-contracted soft services like cleaning and catering under public control. Let’s start unwinding the PFI mess with Worcestershire Royal Hospital.

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…

Like some dodgy hire-purchase agreement, PFI allows the government to avoid paying up front for the cost of big building projects. Instead, private companies get to build and run the ‘assets’ and the taxpayer then has to buy back these services, usually over a 20-30 year period. But this isn’t like buying a house on a repayment mortgage, more like buying with one of those complicated endowment mortgages we were all encouraged to use back in the 80′s and 90′s.

The intention was introduce private sector discipline into public funded schools, hospitals and prisons etc. But as George Monbiot points out, “Far from introducing market disciplines, it has become an official license to fleece the taxpayer. Far from reducing the public sector borrowing requirement, PFI is, as the Accounting Standards Board has noted, simply an ‘an off-balance sheet fiddle’”.

Almost every leaked document suggests that it is a gigantic fraud perpetrated upon the taxpayer and if everyone knew what was really going it would be ditched. But with the Skye Bridge toll victory in mind George Monbiot said “This is great news for two reasons: first it shows that persistent protest can eventually win against impossible odds. Secondly it suggests that the Private Finance Initiative – the biggest financial fraud ever foisted on the British people – is beginning to fall apart.”

Whilst everyone can understand last years MP’s expenses scandal where a few million pounds were wasted and most of us get hot under the collar thinking about it; most people don’t understand PFI but the costs and debts for PFI are truly staggering and run to billions of pounds in waste.

In the coming days we’ll expand on this theme and offer some solutions.

The above is an abridged and updated construct from the following sources:

http://www.schnews.org.uk/archive/news458.htm and http://www.guardian.co.uk/commentisfree/2009/may/25/pfi-corruption-transport-roads

There’s also a very interesting piece in today’s Independent on Sunday:

http://www.independent.co.uk/news/uk/politics/iiosi-special-investigation-how-government-squanders-billions-1877276.html