Could this be Labour's poll tax?

<em>Labour Conference 2001: Privatisation</em> - Raw sewage in operating theatres; £25 a week for pa

The attack on the World Trade Center was a disaster for the world, but a blessing for Tony Blair. As the second plane hit the south tower, he was on the point of taking the platform at the TUC conference to explain the government's policies on public services. It had been billed as the most bruising confrontation of his career; a widespread revolt against the way that corporate interests have taken over his government seemed set to begin.

But instead of creeping on to the stage as a reviled public enemy, Blair was permitted by the events in New York to slip into his most exalted public role: the grieving father of the nation. The conference broke up early, silenced by the horror on the other side of the Atlantic, and Blair and his policies lived to fight another day.

Blair's gain was our great loss. New Labour had, until that point, succeeded in marginalising public discussion of its privatisation policies. Its flat refusal to engage in debate, to answer even the most stinging criticism of its programme, has proved disturbingly successful. Now, thanks to Blair's escape, the most dangerous programme of reform that any British government has initiated in the past 50 years can continue to mushroom in the dark.

The private finance initiative (PFI), or public-private partnership (PPP) - the two terms are more or less interchangeable - is the means by which most of Britain's new public assets are to be built and run. Hospitals, schools, roads, bridges, rail systems, government offices, courts, prisons and army facilities will all be funded and maintained by private companies.

The government insists that the PFI offers far better value for money than public spending: that private companies pour money into the public sector, and projects are built faster and (thanks to the efficiencies of the private sector) more cheaply than they could otherwise have been. It is quite wrong, ministers argue, to regard this as a form of privatisation, as the state retains control. All these justifications are false. The PFI is a deadly scam, more hazardous by far than the privatisations of the 1980s.

In researching the first edition of my book Captive State, I investigated the curious discrepancies between the cost of upgrading Britain's hospitals with public money and the costs of doing so with private money. I started work in Coventry, whose Walsgrave Hospital, on the outskirts of town, has long been in need of repair.

In the early 1990s, the NHS had planned to renovate the Walsgrave, at a cost of around £30m. The government refused to pay. In 1997, after the Labour administration indicated that no substantial public funding would be available, the local NHS trust submitted a new plan: for the privately financed demolition of both the Walsgrave and the city centre's Coventry and Warwickshire Hospital, and the construction of a new complex on the Walsgrave site, at a cost of £174m.

The trust's financial plans were kept out of the public domain: indeed, they were considered so sensitive that they were not even placed in the library of the government's PFI task force. But as details began to leak, local people became increasingly concerned: the new hospital would have fewer beds than the two old ones, and would be much harder to reach than the city-centre building. The new plan seemed to make no sense at all, until I acquired a confidential financial report commissioned by the health authority. In its quiet, mathematical way, the leaked report was one of the most explosive documents I have ever read. It demonstrated unequivocally that the government's plans for the NHS spell the end of universal healthcare in Britain.

The report revealed that, under the rebuilding scheme, the NHS trust would have to pay the winning consortium £36m a year throughout the 25- or 30-year contract. There was only one way of finding this money: by slashing the numbers of both beds and staff. The contract offered to the private companies bidding to build the hospital would be affordable only if Coventry were to lose 25 per cent of its all-purpose beds and 20 per cent of its staff.

Nobody, the report showed, had sought to answer the obvious question: was a new hospital necessary, or could Coventry's needs be met by renovating its existing hospitals? It seemed unlikely that the Walsgrave, whose construction had begun in 1966, needed complete demolition and rebuilding. So why had a £30m renovation scheme been replaced by a project that would cost £36m a year for 25 years? The consultants' report was unequivocal: the scheme had been "progressively tailored to fit the needs of private investors".

The NHS had been told by Alan Milburn, the Secretary of State for Health, that it was "PFI or bust": there was no point in applying for public funds. Unless Coventry could attract private finance, the two hospitals would continue to deteriorate until they became unusable. But the private consortia bidding for hospital contracts are not interested in renovation schemes, as they are too small to generate serious profits. This option had to be rejected because it was too cheap. Rebuilding had been chosen only because it was so expensive.

Moreover, by closing the city-centre hospital, the consortium could sell the land it stood on for tens of millions of pounds. The NHS, in other words, had been forced to invent a project that would make money for private companies, rather than proposing one that would best meet the needs of the people of Coventry.

Coventry's story, as the analyst Professor Allyson Pollock has shown, is being replicated everywhere. As soon as a private finance scheme is proposed, the price of hospital regeneration rises by an average of 72 per cent. From that point onwards, costs continue to rise, as the consortia devise ever more innovative means of altering their contracts.

As well as building the new hospitals, the private consortia are responsible for running non-clinical services, such as cleaning, catering, portering and maintenance. The rent that the NHS pays for the building and services is supposed to come from the 6 per cent "surplus" it sets aside. But as the consortia have forced up costs, the surplus has proved woefully inadequate. The only way the NHS can find the money with which to pay the companies is to cut clinical services: beds, doctors and nurses. A study by the Department of Health's consultants shows that every £200m spent on privately financed hospitals will result in the loss of 1,000 doctors and nurses. The new hospitals will contain, on average, 28 per cent fewer beds than the publicly funded buildings they replace. Cutting beds and staff is unsustainable without cutting services. This is the end of universal provision.

In September 1997, the consortia were given legal and constitutional priority over NHS funds. Faced with a choice between furnishing the contractors with astronomical profits or leaving patients to die in hospital corridors, the NHS must now attend to the companies first.

The grim predictions I made last year have already started to come horribly true. Two of the first PFI hospitals to open in Britain - North Durham and the Cumberland Infirmary - though vastly more expensive than the equivalent public projects would have been, have proved to be all but uninhabitable. The PFI consortia appear to have cut their costs at every opportunity, so that neither buildings nor support services can sustain the unprofitable business of looking after patients.

In Durham, the consortium has disclaimed responsibility for portering services, so ambulances have been used to move patients from one part of the hospital to another. Sewage has burst through the ceiling of the pathology department. Casualty patients have been waiting ten hours for treatment. In the middle of the summer, the hospital ran out of beds; staff are dreading the winter.

In the Cumberland, temperatures have reached 110o Fahrenheit because the consortium failed to install air-conditioning. Raw sewage has bubbled up through the sinks and flooded the operating theatre. The electricity has failed repeatedly, leaving the nurses to ventilate anaesthetised patients by hand. Waiting times have doubled and operations are cancelled because, in order to cut costs, the consortium sacked the engineer who maintained the sterilising equipment.

In both hospitals, patients are forced to pay extortionate fees for "ancillary services": in Durham, watching TV costs up to £25 a week. In the Cumberland, calls to patients are charged at the same premium rate as sex hotlines.

In June, I discovered that PFI contracts are even more lucrative than previously thought. I was sent a stack of leaked documents that showed conclusively that the consortium building the Norfolk and Norwich Hospital stood to extract £70m from the scheme before a single patient had been admitted. The money would come from the "refinancing" of the loan that the consortium had taken out to build it. Once the building was complete, it would become apparent that the profits from running it were so high, and the risks so minimal, that the consortium's bankers could be persuaded to renegotiate the loan on more favourable terms.

In the quiet demolition of the NHS, we can foresee the destruction of all the public services contaminated by the PFI. I have documented similar scandals involving roads, prisons and the Passport Agency. The London Underground scheme, as everyone now knows, promises disaster. In all cases, the private finance initiative offers both poorer services and higher costs than public funding would have done. The PFI has not yet inspired a revolution only because the full extent of this scandal has been smothered by "commercial confidentiality": public interest has become a strictly private business.

Those who support the initiative maintain that because ownership of the assets reverts to the public when the contract has terminated, the PFI is nothing like conventional privatisation. In a way, they are right: under straightforward privatisation, companies acquire liabilities as well as assets. Analysis of leaked PFI contracts shows that, while the corporations reap the gain, the public reaps the pain: almost all the risk that should have been transferred to the consortia is cleverly shifted back to the government during negotiations.

So, given that the private finance initiative is less popular than the poll tax (a MORI poll estimates public support at 11 per cent), why does the government persist with it?

Part of the reason, I believe, is that ministers simply don't understand what is happening. Getting to grips with the accountancy underpinning the PFI took me months. Civil servants are happy to keep their new masters in the dark, not least because many of them are on secondment from the companies that will profit from the initiative. But the scandal also shows the institutional corruption at the heart of a government that treats companies with deference and voters with contempt.

The PFI looks invulnerable. But one of the reasons why so many projects are being rushed through so soon is that both contractors and ministers recognise that it simply couldn't survive sustained public scrutiny. A few weeks ago, the appropriately named John Gains, CEO of the construction and services company Mowlem, warned that if public protests were allowed to grow, the PFI would drop dead. As trade unions start withholding funds and public awareness spreads, there is a real prospect that we could do to PFI what we did to the poll tax.

But first we have to drag the programme, and the Prime Minister, kicking and screaming into the light.

George Monbiot's book Captive State: the corporate takeover of Britain is now published in paperback by Pan (£7.99)