The folly of PFI exposed

The cost of hospital building will put huge pressure on the NHS at the worst possible time.

The time to say "I told you so" might have arrived for Public Finance Initiative naysayers. The BBC reports today that due to some cunningly engineered PFI contracts, the health service in England will end up paying £65bn to private contractors for hospital building.

This figure is shocking, given that the actual value on completion of the 103 hospitals was just £11.3bn. This means that, in effect, private companies are charging the state a premium of more than £50bn for building and mainaining these hospitals.

Those versed in the skulduggery of PFI -- whereby a private company builds public infrastructure and then leases it back to the state -- will cast a weary eye over these figures. As George Monbiot pointed out over a year ago, the way the contracts are put together is unnecessarily complicated, and primarily aimed at keeping these liabilities off the state's balance sheet (though this no longer holds).

As Monbiot notes, the "public-sector comparator" used to assess the relative cost of public and private finance for these projects was deeply flawed. This is particularly galling, as the one of the main arguments in favour of using PFI was that it was more efficient than the public sector.

These huge NHS bills for patient care could have dire consequences for patient care. As the British Medical Association notes:

The inflexibility of PFI contracts means that it is more likely that hospitals will make cuts to services to meet their PFI repayments.

The whole sorry saga ought to make us look with trepidation on the government's cheerleading for the role of the private sector in a revamped NHS. It is yet more evidence of the reduced accountability that goes hand in hand with greater private-sector involvement -- a gap that David Cameron's "big society" is yet to address.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.