Friday, 19 November 2010

Nice little earner

PFI has been a nice little earner for those companies who’ve been able to take advantage of it.  The theory is that it’s some sort of partnership between the public and the private sector; the reality is that one part of that ‘partnership’ has benefited, whilst the other has lost out.
Those cash-strapped public bodies who found themselves pushed into using the approach have found that they have got shiny new hospitals and schools which they could not otherwise have afforded, but are faced with huge ongoing annual costs about which they can do little.  And that, in turn, has constrained their ability for further investment in other facilities until the end of the contract period.
The companies, on the other hand, have found themselves with a guaranteed source of long-term income, whilst all the risk remains with their customers.  It’s a completely unequal partnership, and has been from the outset.
No real surprise then that the CBI – which represents the sort of companies which have benefited – is again pressing for Wales to use PFI.  From their perspective, it’s a neat way of transferring resources from the public sector into the private one.  But over the long term, it also means that the public sector gets less for a given amount of expenditure – the opposite, in effect, of what the CBI and other organisations have long been urging on government.
The Welsh Government is absolutely right to rule out PFI – and I hope that they will continue to do so.


Glyndo said...

It strikes me that PFI is simply a mechanism to allow "borrowing" where borrowing is not normally allowed. As such it is not intrinsically good or bad. The problems that have arisen are due to public bodies being outsmarted by private industry negotiators. (‘Cause they’re better at it than civil servants and council officers) This, surely, isn’t the fault of the PFI system; it’s the fault of the public sector teams.

John Dixon said...


'Backdoor borrowing' is certainly part of what PFI was about. However, because it leads to leasing the facility rather than ownership, it's a very expensive way of borrowing.

As for being outsmarted - well I agree that that is part of the problem; but outsmarting someone is made a whole lot easier if the rules give you a head start as well.

Illtyd Luke said...

In daily life there's a difference between responsible borrowing and extortionate loan sharking.

PFI IS intrinsically bad because it ties public services (some hospital car parks for example) into historically broad
repayment periods at rates that are designed to facilitate making a profit out of a public service.

It strikes me as strange that the opposition parties in Wales claim to be concerned about waste but both want to increase the use of PFIs in Wales.