PFI ‘privatising the profit; nationalising the debt’ – Margaret Hodge

accawebmaster —  29 September 2011 — 1 Comment

Event two for ACCA at Labour’s annual conference, and a much more fractious debate than our Chuka fringe. Should PFI (Private Finance Initiatives) form part of government’s plans for investment in future, we (and the Social Market Foundation) asked.

Well, ‘no’, responded several panellists and Labour members in our audience, for whom further PFI would be as welcome as a foot massage from George Osborne.

Unfortunately though, according to some panellists the less than gruntled party members are going to have to lump it: PFI could be here to stay.

For the uninitiated, PFI is a form of Public-Private Partnership that sees private finance used to fund major public-sector infrastructure investment. Public infrastructure is built and owned by private bodies and is leased back to the public sector.

Begun under the Major government, PFI is close to two decades old in the UK, and, despite criticising PFI under the 1997-2010 Labour government, the Coalition has already signed nearly 70 new PFI deals since last May’s election.

Envisaged as way to invest in infrastructure when public finances are tight – PFI investment used to be ‘off’ balance sheet – and to transfer the risk of infrastructure projects to the private sector, PFI has never sat well with grassroots Labour support, suspicious of private sector encroachment into the public sector and concerned about its expense.

Public Accounts Committee (PAC) chair and former Labour minister Margaret Hodge MP, encapsulated Labour’s PFI dilemma. Hodge ‘confessed’ to being an architect of PFI during her time at Islington Borough Council when PFI was used to overhaul decrepit housing stock. She spoke of the pride that Labour MPs felt after 1997 as they opened brand new schools and hospitals. The ends, then, apparently occasionally justify the means (a cynic might say ‘when Labour does it’).

However, she acknowledged that PFI was a double-edged sword. Hodge noted PFI had led to costly errors, particularly when used for defence spending, as cumbersome contracts were not flexible enough to keep up with the latest developments. PFI was also ‘less than 100 per cent honest’ with misleading comparisons being made to alternatives at decision points (it being impossible to assess the competitiveness of the cost of finance for the next three decades, given the variability of interest rates).

Hodge went further. She pointed to evidence that said PFI was not more efficient or less risky than traditional public expenditure, neither was the PFI market competitive: any suggestion that it was, was ‘iffy’.

Backing Hodge was SOAS’ professor George Irvin, who argued PFI was too expensive and poor alternative to ideas such as a National Investment Bank.

For PFI fans though, there was some respite from the Social Market Foundation’s Ian Mulheirn and ACCA’s Gillian Fawcett. However, if the defence of PFI from the SMF/ACCA pair was anything to go by, criticism from them could not be much worse.

Both noted the risks of PFI and its poor performance. Mulheirn described the PAC and Treasury Select Committee reports on PFI as ‘not happy reading’, and described PFI’s value for money as ‘poor’. For Mulheirn, PFI is the worst possible form of capital expenditure compared to all alternatives; but if there are no alternatives it can be the only way to get things done.

Fawcett said that certain lessons needed to be learnt over PFI: that it should only be used when it had a clear value for money advantage over alternatives; that transparency and accountability needed to be improved; and that while a ‘tempting’ option for investment when public finances were tight, it needed to be looked at as one of many tools in a government’s toolkit.

The final word though goes to the chair of parliament’s public spending watchdog, Margaret Hodge. PFI, she said, might be acceptable when public expenditure was growing, but it was unsuitable when it isn’t. PFI, she concluded, cannot be a part of a strategy for growth as it costs ‘too much’; the Coalition’s embrace of PFI was ‘privatising the profit; nationalising the debt’.


One response to PFI ‘privatising the profit; nationalising the debt’ – Margaret Hodge


    Margaret Hodge is absolutely right PFI is just too expensive an option under the current and past as anyone with common sense can see. If you need proof just evaluate the on going costs the PFI companies levy just for providing basic services, let alone the repayment on the claimed initial investment, for catering,cleaning,security and maintenance. These on- costs and the profiteering by the PFI companies and their subcontractors should be made public. They should be shamed and brought to account. The alternative of doing nothing should not be an option

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