The Private
Finance Initiative was always bonkers. The idea was that, instead of the
government borrowing to build infrastructural projects, they would hand the job
over to a private consortium to raise the money.
This was
always daft. The government was always the safest borrower in town. When did
you last hear of a government going bust? Because its loans are completely
safe, the government can borrow at a cheaper rate than anyone else.
So what is
the justification for getting the private sector to stump up the money? The
answer New Labour gave was that they were taking on the risk. What risk is
there in building a hospital or a school, we wonder? Now we know the answer.
The private
consortium would usually borrow the money from a bank. But, if you haven’t
heard, the banks are in trouble. They are not lending out money like they used
to. It’s called the credit crunch. Not only that. They’re in such dire straits
that the government is bunging huge sums of money – our money – at them.
Before July
2007 there were about 80 banks ready to lend for PFI projects. Now there are
only 12. Nick Mathieson, writing in the Observer (01.02.09) spells out the
consequences. First he quotes Margie Jaffe from UNISON. “It seems to me that
it’s time to knock PFI on the head…Given what it costs the government to
borrow money compared with the private sector, it’s mad.”
Mathieson
continues, “Critics believe the ‘madness’ has been compounded by the bail-outs
of Royal Bank of Scotland and HBOS. Both banks, in which the government has
large shareholdings, are big lenders to PFI projects. So the government is in
the position of bailing out banks that are charging it to supply debt for
public amenities.”
Got it? We
give the banks money. Then they give it to the PFI projects. The banks wouldn’t
have the money to dish out if we hadn’t given it to them first. The PFI
consortia gratefully take the money and build the projects.
When the
project is finished we give the PFI people their money back – plus vast
profits. In an associated article in the same issue of the Observer Allyson
Pollock notes, “Evidence released under Freedom of Information in Scotland
shows shareholder profits above 3,000% in some cases.”
So when the
money has gone round and round, the PFI firms can pay the banks back. But we
effectively own the banks! We finally get our money back, minus what has stuck
to the fingers of the banks and the PFI consortia. PFI is a stinking scam.
