Wednesday, 30 August 2017

The Scourge of the “Private Finance Initiative”: An Ideological Assault

Today’s post looks at the news that companies that have built NHS hospitals and associated services over the past six years have recorded pre-tax profits of £831 million, with a further £1 billion expected to be made in the next five years. These companies operate under what is known as the ‘private finance initiative’ (PFI), which can be directly traced back to John Major’s Conservative Government in 1992, and indirectly associated with the socially-defining period of Margaret Thatcher’s reign in the 1980s, a reign which is synonymous with the concept of privatisation. This almost absolute transference of service provision to the private sector, will be the focus of this post as we look at the effect that the initiative is having upon the service that the NHS can provide – assessing where the money that can go to the NHS actually ends up will be revealing, and perhaps is what should have been paraded on the side of that infamous bus.

The issue of providing certain services to the public, and crucially how best to provide them, has long since been debated and theorised within a number of academic fields. One of the key approaches that has been adopted is that of the ‘public private partnership’ (PPP), which seeks to combine public and private endeavours to make the provision of a public service, or a ‘public good’, as efficient as possible. Furthermore, where a service is required but it is extremely inefficient for the State to provide it, they will often incentivise private companies to meet that demand – this author has discussed this at length with regards to Credit Rating Agencies. Yet, it is extremely important that we define these different endeavours correctly, because PPP and PFI are not the same thing (arguably, they are not even close). PFI describes a process whereby a certain service requirement is put out to tender for private companies, and a local authority will then enter into a long-term contract with that private company, or collection of companies through a ‘Special Purpose Vehicle’ (a special legal subsidiary that has its own legal status or ‘personality’); those contracts will usually see the local authority commit to a certain number of years for a certain amount, which is theoretically paid based on the performance of the provision of services etc. The PFI and the PPP are not the same, despite what the British Government say, because PPPs are usually designed to increase the provision of public goods without directly drawing from public funds (although this is not an exclusive characteristic, admittedly), whereas PFI have the ability to draw from public funds intrinsically interwoven within their creation, which is where the destructive and disgusting element of this mode of finance can be seen.

The best example of this is the NHS, and the recent news stories have brought this to the fore. However, they are a persistent problem, and one that we must acknowledge is of Conservative creation but was expanded by the policies of New Labour in the late 1990s; the then Chancellor Gordon Brown expanded their usage greatly as New Labour cemented the incredibly short-term philosophies that see the country in the mess that it is in now – the Chancellor was attracted to the ability to ‘buy now and pay later’, pushing the debt burden onto future generations and off the governmental balance sheet. It was reported in 2011 that the British Taxpayer owed a staggering £121 billion on projects worth only £52 billion, demonstrated the extraordinary profit to be made from the pockets of the taxpayer. In 2011 there were a number of scandalous reports concerning PFIs and the NHS, including jobs worth £750 being charged at £52,000, hospitals costing ten times what they are worth, and hospitals and schools still recording six-figure revenues for SPVs despite them being closed. Therefore, it should come as no surprise that reports today suggest that ‘large sums that could have been used for patient care have instead gone into the pockets of a handful of PFI companies’, with analysis from the Centre for Health and the Public Interest suggesting that not paying the pre-tax profits between 2010 and 2015 would reduce the massive NHS deficit by a quarter. The analysis continues by surmising that the capital value of assets built for health-related PFI initiatives stands at £12.4 billion, although the NHS will ultimately pay over £80 billion for their use; this incredible scheme, supposedly, will end up costing the taxpayer over £300 billion, or £10 billion a year, which is an extraordinary understanding to comprehend.

Labour MP Stella Creasy has been making the point loud and clear that there needs to be an urgent competition enquiry into this particular market, which comes in addition to her view that there should be an increased tax on their profits. However, this viewpoint has been excellently critiqued by one commentator, Joel Benjamin, to show that her particular understanding does not take into account the fact that rate-rigging (the LIBOR scandal) directly affects the value of the PFIs and that the physical construction of these services by the PFIs have questionable and concerning public-safety records, with the Fire Brigades Union warning that it is extremely concerned ‘about the risks posed by poor fire safety in hospitals and schools built for profit’ – the comparison with the incredible tragedy at Grenfell Tower needs no introduction here, but the comparison is absolutely correct. In essence, we have a system that is designed to siphon money from the public fisc, one that is not rigorously monitored, and one that is continuously expanding.

Ultimately, the stories of NHS trusts being left without any option other than to commit to more debt to offer the services the public require, and stories of the families of the poorly being charged exorbitant rates to visit their relatives and/or friends will continue to be commonplace. Only a small number of people can read this news and not see the scandal and the tragedy, but unfortunately those people likely wield considerable power or have plenty to gain from this incredible arrangement. However, the situation reveals a more depressing situation. The birth of the NHS is a defining and extraordinarily positive moment in British history, and should be protected at all costs; yet, news stories like the PFI scandal will be replaced with something else once the news cycle turns, with very little action being taken other than the continuation of the scandal. Rather than focusing on instances such as Brexit, or the intra-party squabbles in the Conservative, Labour, SNP or Liberal Democrat parties, there needs to be a sea-change in what the public react to. This particular news story demonstrates, without doubt, that both leading political parties are complicit in creating a scheme that is designed to remove funds from the public into private hands – it is traditional to blame the Conservative party, but this is a political problem, not a Conservative problem. This story is the realisation that the State is captured by private interests, and that the public only serve (under this system) to fulfil their duty of providing resources to be siphoned off to the few – whether that is ever truly realised on a large enough scale is the most important question to ask.


Keywords – Private Finance Initiative, Public Private Partnership, NHS, Health, Finance, Politics, Business, Ideology, State, Public, @finregmatters

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