Labour to nationalise controversial PFI contracts?

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Labour to nationalise controversial PFI contracts?

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Author Mark Fairlie

The newspapers have been full of stories for months about how much Private Finance Initiatives (PFI) cost the country.

But what are PFIs, how did they come about, how much are they costing the country, and what is the Labour Party proposing to do about it.

What are PFIs and where did they come from?

Private Finance Initiatives are ways of financing public infrastructure projects, like roads, schools, and hospitals, with private capital.

Private capital is money held by banks, investment houses, and high net worth individuals. Because governments rarely default on their debt, PFIs are seen as very safe investments.

Developed under the Conservative government in 1992, their use exploded from 1996 primarily under the Tony Blair-led Labour Party.

Examples of projects funded by PFIs are:

  • Queen Elizabeth Hospital, Birmingham (£545m)
  • University Hospital, Coventry (£410m)
  • Colchester Garrison, Essex (£549.4m)
  • Queen’s Hospital, Essex (£835m)
  • Medway Police HQ, Kent (£30m)

Why are they controversial?

The main reasons cited for opposition to PFIs are the ongoing costs involved, the fact that private organisations make a profit from public sector works, and the length of the contracts.

Borrowing via PFI costs a lot more than if the Government borrowed the money directly from the financial markets, according to a report in 2011 by HM Treasury. The report stated that

“PFI funding for new infrastructures, such as schools and hospitals, does not provide taxpayers with good value for money and stricter criteria should be introduced to govern its use.”

 

Labour Party John McDonnell

By Rwendland (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Between 2014 and 2044, UK taxpayers were committed to spending £305 billion in PFI repayments across 700 projects the system of finance had been used on, according to the Guardian.

 

John Appleby, from the Nuffield Trust, told BBC News that the NHS was paying private firms about £2bn a year for PFI schemes. He also stated that the cost of interest payments for completed projects was likely to total £56bn by 2048.

What does the Labour Party want to do about it?

In his speech to the Labour Party Conference in Brighton on Monday, 25th September 2017 and as reported

by the Independent, John McDonnell, the Shadow Chancellor, told delegates that, “The scandal of the Private Finance Initiative has resulted in huge long-term costs for taxpayers while providing enormous profits for some companies. Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens…

“We have already pledged there will be no new PFI deals signed by us in government. But we will go further. It is what you have been calling for. We will bring existing PFI contracts back in-house”

What has the reaction been to Labour’s announcement?

Director General of the Confederation of British Industry, Carolyn Fairbairn, told the Guardian, that

“The shadow chancellor’s vision of massive state intervention is the wrong plan at the wrong time. It raises a warning flag over the British economy at a critical time for our country’s future.”

However, the speech received long and enthusiastic applause from the delegates at the Conference. Later, Dave Prentiss from the Unite union told BBC News that he welcomed the move and that buying out the contracts would be of better value.

By | 2018-05-30T10:07:36+00:00 September 28th, 2017|Personal Finance, Politics|0 Comments

About the Author:

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Journalist, Mark Farlie, provides cutting edge articles with a focus on plain English & zero jargon. With a breadth of interests, Mark writes on topics such as; personal finance, commercial finance, B2B, marketing, law and technology.

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