People vs PFI gives a huge welcome to John McDonnell’s speech at the Labour Party conference today calling an end to the disaster of the Private Finance Iniative. It is recognition that PFIs not only burden public authorities with debt, they have also been a major vehicle for the privatisation of key elements of the public sector, enabled, promoted, and subsidised by HM Treasury policies.It is a scandal that hospitals and schools make cuts to staffing and services, while extortionate payments they are due to pay on their PFI contracts are ring-fenced, and even subsidised by Central Government.
McDonnell promised that Labour will sign no more PFIs or similar arrangements. He also tackled the issue of tax avoidance by investors in PFIs:
“….never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens. The government could intervene immediately to ensure that companies in tax havens can’t own shares in PFI companies, and their profits aren’t hidden from HMRC.”
Many of the investment funds with shares in Special Purpose Vehicles (the companies which hold the PFI contracts with public authorities) are registered in offshore tax havens. It’s high time the companies which benefit from government contracts pay their share of taxation. People vs PFI reported previously how HMRC’s own offices are part owned in offshore tax havens, via a PFI contract.
John McDonnell continued:
“We’ll put an end to this scandal and reduce the cost to the taxpayers. How? We have already pledged that there will be no new PFI deals signed by us. But we will go further. I can tell you today, it’s what you’ve been calling for. We’ll bring existing PFI contracts back in-house.”
There are two ways to bring PFI contracts back in-house: Nationalising the Special Purpose Vehicles through which public funds are pumped into private pockets – a policy supported by People vs PFI, and buyouts.
Buyouts are hugely expensive and private investors can walk away with their money early to invest in more PPPs.
Nationalisation, unlike buyouts, puts the government in a commanding position. Immediately PFI contracts would become public, and public ownership would end the most egregious forms of profiteering such as sales of shares in the SPVs and dividends paid to the owners of the SPVs. There would be claims for compensation from private investors but against such claims the government would weigh the following considerations (among others):
- poor building quality and fire safety failings evidenced by Edinburgh Schools, Peterborough Hospital and Chalcots Estate,
- tax avoidance, according to one report “Twelve offshore infrastructure funds have equity in 74% of the 735 current UK PFI/PPP projects“
- profit extraction through dividends paid to shareholders in the SPVs and speculative sales of shares.
- interest rate rigging by PFI lending banks.”
Analysis of the cost of PFI undertaken by the new economics foundation found Scotland would have saved a staggering £26 billion on PFI infrastructure outlay of £40 billion with a National Investment Bank funding infrastructure.
Replacing NHS PFI finance with public financing via a National Investment Bank could have saved the public purse around £52bn across the NHS, or as much as £208bn where replacing all PFI spending UK wide.
See our new exhibition on PFI to understand the urgent need to scrap PFIs and create a mew model for public infrastructure procurement.