What is PFI?
In theory it’s like a mortgage used by government to build new hospitals, schools, roads, housing estates, and even satellites and aircraft carriers. Instead of paying cash up front the government gets a loan from a group of private companies, who manage the construction, maintenance, cleaning and other services. We then pay them a form of ‘rent’ for using the hospital and all their costs of maintaining it for the life of the contract which can be 30 years or more.
What’s wrong with PFI?
For starters, borrowing from the private sector is more expensive than the government borrowing money so we’re already paying over the odds. Then, once the contract is signed its almost unbreakable, so if it’s badly written, it often turns out that the contractors still get paid for not doing a very good job and there’s nothing the public body can do about it. Not being able to change the contract without massive expense also means that many schools and hospitals are stuck paying for what they may have needed decades ago but doesn’t meet the needs of the public now.
All of the companies involved! The banks, the major construction and engineering companies and outsourcing firms. They’ve worked it so they all get paid twice and can get a few bonuses here and there too. For example: the construction companies make a nice profit on actually building the school or hospital, but then get a steady stream of ‘rent’ over the next few decades too. And more recently, swathes of PFIs are being bought up by a group of infrastructure funds, some of whom are based offshore.
Why has been allowed to go on so long?
These PFIs are notoriously secretive. You’d never know just by looking who actually owns any public building and who’s getting rich on your taxes. And once you start digging, the shroud of ‘commercial confidentiality’ quickly gets drawn – so unless you know what you’re doing the public aren’t even able to look at the contract that’s been signed on your behalf, let alone how much money you’re paying out or the failures of the companies involved.
The Private Finance Initiative was brought in under John Major’s Government in the early 90’s as a way to introduce ‘private sector efficiency’ into government . But it was New Labour that really took things to another level. Paying up-front for new public buildings was no longer possible because of Gordon Brown’s ‘responsible government borrowing’ targets, so instead of booking the debt as a big lump it could be concealed in decades worth of repayments. Ultimately, this led to nearly every new school and hospital built under New Labour using PFI. And the Coalition hasn’t stopped, despite the case for Private Finance being thoroughly discredited.
What can I do?
PFI isn’t going to get solved unless we take action. We are collecting a list of resources to help people understand PFI and link them to organisations dedicated to ending it. If you have additions to our resources, please share them with us!