Aneurin Bevan argued that the language of priorities was the religion of socialism. How Labour approaches Private Finance Initiative contracts is a real test of faith in what being left-wing means. Across the country schools and hospitals are saddled with debts they cannot reduce to pay for buildings and services they can no longer afford. Those headteachers planning redundancies or hospitals cutting operations to make budgets add up need more than to be told to wait until there’s a Labour Government. Today’s vote on whether to apply a windfall tax on the profits PFI companies gives us a chance to show whether our commitment to tackling predatory capitalism is fact or fiction.
Although introduced by John Major, PFI is synonymous with New Labour. It embodied the third way, bringing private cash to cover the cost of building public institutions. It seemed a win-win – Governments got to keep borrowing off the books, and private companies charged excessive rates of interest for taking on the risks of building and running schools and hospitals. With £200bn due back to these companies over the coming years for £60bn worth of buildings, PFI is the equivalent of taking out a payday loan to pay for building and running our public services. Last year the annual payments alone amounted to £10.3bn – with around half of this being for interest repayments and charges by these companies rather than for services.
The National Audit Office calculate it is on average 40% more expensive than public borrowing. The problem isn’t the higher costs but the intransigence of the companies involved too. Northamptonshire Council is effectively bankrupt, but will still have to foot an eyewatering and irreducible bill of £270million over the next two to five years alone, of which £77m is interest payments. The Centre for Health and the Public Interest has highlighted that nearly a quarter of the additional funding the Government has promised for health and education will go direct to these companies in profits. Carillion’s collapse and uncertainty about Interserve shows that the belief working with the private sector would transfer the risks of building such projects to them is also flawed.
With PFI, the devil is very much in the detail. Four hundred pages long, the standard contracts explicitly demand full cost recovery for the financiers if deals are cancelled. On top of this, the National Audit Office has also documented how the Government would be required to cover the costs of the interest rate swaps used to prop up their profitability. Human rights contract law is on the side of these companies in ensuring they would be compensated should anyone seek to nationalise them. Potentially billions would have to be paid to the eight or nine financing companies who account for most of this industry- vital funds sucked out of our already cashstrapped public sector for their shareholders not service users.
But whilst the deals are watertight, taxes are one area where there is room for manoeuvre. When these contracts were signed, the level of tax companies would pay formed a key part of the value for money assessment. Many were agreed at a time of 30% corporation tax. Under the Tories this will fall to 17% by 2020. Within the NHS alone they have already made a windfall of £190m savings in their tax bills from these changes – in our education system they stand to get an unexpected bonus of £60m extra by 2020 in reduced tax liabilities.
Asking individual hospitals and schools to renegotiate these contracts on their own is prohibitively expensive and yields limited savings. If the Government stepped in to deal with the small number of companies involved across the portfolios of loans they hold this could generate substantial savings. Critically, using the threat of a windfall tax to get them to the table puts in sight a solution – and cashback – within a matter of months, not years. Longer term, enabling local councils and trusts to issue bonds, opening up a sovereign wealth fund for infrastructure investment and supporting more competition for the business of the public sector would all break the stranglehold these companies have had for so long on the costs of public sector borrowing.
By voting for a windfall tax today, MPs have a chance to show if the Government is too afraid to negotiate, then Parliament will act to recoup taxpayers’ losses. It cannot happen a moment too soon. Claiming we can tear up contracts may sound great to the faithful in political party meetings, but to tackle the hell these services are living with there’s an urgent and pressing need to focus on how to get cashback for our public services now. Those working in PFI-run schools and hospitals need and deserve nothing less.