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Tuesday, 6 December 2011

The Perfidy of Politics.

Now that Osborne has cancelled Christmas, probably forever, I wanted to examine the the somewhat hypocritical, even treacherous view that 'contracts' with those providers in the Private Finance Initiative (PFI) are somehow 'different' from contracts with the employees of the State.

We have been told, interminably by those in power, that PFI under the last Government was sacrosanct as the contracts written were unable to be broken, despite the huge cost the taxpayer has had to bear, with little (no) reward. Ordure was heaped, quite rightly, upon the Labour Government for the  veritable 'bonanza' that PFI enjoyed during these years, with outfit's like Innisfree (who they?) making huge returns on contracts, and with equity capital investors enjoying unprecedented yields, all funded by the taxpayer. In addition, these same investors were also able to take advantage of refinancing the contracts and thus receiving 'windfall' profits of many millions without any consequent reduction in charges to the client.  These investors, in the main, were domiciled  for tax purposes in places like Guernsey or Jersey, where they paid no UK tax on these profits (capital gains), and yet the tax yield had been part of the assessment of cost/benefit analysis by the Treasury, that allowed PFI to be used as the major vehicle for infrastructure development in the first place!

So, large and important elements of the infrastructure of this country, including Education and the NHS, were leased from a 'cabal' of financiers and construction companies at returns that were at least double the rate of the government borrowing for up to 35 years, with maintenance contracts that extracted annual increases far in excess of those available by competitive tender. In one case a return of  60% was made by refinancing the 'mortgage' on a Hospital without a penny of the profit or any reduction in the lease cost to the NHS. All of this is down to successive governments of the 'neo-liberal' persuasion (all of them in the last 30 years then!) who have wanted to abdicate all responsibility for the cost or construction of infrastructure and keep the capital spending off the balance sheet, even if it meant huge lease costs to the taxpayer.

The recent Public Accounts Committee Report makes interesting reading (although 66 pages long), with some 30 projects worth a value of £2.1 billion being signed to March 2011 despite the rhetoric of Cameron about 'poor value'. And there are some 61 projects of a value of £7 billion in the 'pipeline'. The ConDems' will quietly agree these without demure, just as all those who went before. After all the contracts are 'off balance sheet' and no one will notice the perfidious nature of the transaction, will they?

Interesting also, is the sale of equity in the PFI's by the Construction sector, which yielded between 41% and 78%  to the 'usual' suspects (Carrilion, Serco, et al) compared to the sort of  profits seen in building of 1.5% (1998-2010). This makes the financing and also the running of the enterprise funded, somewhat more lucrative than any other area of construction (sic) and whilst it can be important to have a vibrant and profitable construction sector these are the 'fat cats', with most of the small and medium sized enterprises (SME's) in this sector struggling to survive. This is often, against a background where SME's are being squeezed on margins for the subcontracts that are let by these same companies, and payment terms extended well beyond that which is viewed as norm (30 days). But we are 'all in this together', some of course more together than others. The view that an elite group of financiers and construction 'super' companies are running and maintaining this country at the expense of  taxpayer funded contracts is difficult to believe. That they are doing so at enormous cost, but with little yield to the 'paymaster' (the taxpayer) is also a view that is inescapable. This is where the real escalation of the cost of  UK plc is founded. Not in the pensions of binmen, health care assistants and nurses.

Since 1992 a large and still growing proportion of the UK's infrastructure has in fact been 'privatised', much without our knowledge or consent. This includes, prison's, roads, incinerators, the MOD's buildings portfolio, air traffic control centres, fire and ambulance control centres, (which we have not used but are committed to pay all the charges for another 25 years), schools and colleges, police stations, together with many local and central government offices. This would not be a problem if  the outcome had been better buildings and services at reasonable cost, with a privatised workforce being provided with better management, pay, and conditions. But again this has not been so, with large parts of the legacy of the hard work and sacrifice of generations since the Second World War, being sold for a pittance. Sold despite the fact that the taxpayer owned and paid for these assets. Gas, Electricity Generation and Distribution, Water, Coal, Telecoms, Railways, and much else was virtually given away by successive administrations all bowing to the altar of marketisation and privatisation.

What do we get for allowing this to happen? Well the privilege of Innisfree being allowed to manage vast tracts of the NHS real estate portfolio at such cost as to be able to afford to remunerate David Metter, the CEO to the tune of £8.6 million (salary and dividends) despite the payroll covering less than 30 people. Apparently the average salary of all his employees is £268,000 each!

This 'PFI' construct is a 'bubble', albeit a laucrative and thus far sustained one. Sustained by the belief that NHS Trusts that cannot meet their commitments will be bailed out by successive governments, just like the Banks'.  Does that hold true for the future and anyway, should it? The current paradigm of sustainability of the NHS is being wrought asunder by a certain Mr. Lansley who may have little choice if his back is against the wall on funding for failing components of his 'grand design'. What then for PFI when its' market becomes another 'Greece'?

3 comments:

  1. You've made some telling points, blackdog. And while the Public Accounts Committee often does a pretty forensic examination of the facts, it tends to be too late to prevent the worst of the 'fraud, theft and lies' by 'criminal companies', as I tend to think of them. Anyone with a couple of brain cells knew from the outset that the PFI scams were lousy deals for the country, but sense was overruled...

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  2. Indeed you have Blackdog, made telling points that is. My own controversial view of the evolution of the NHS currently under way is that the old methodolgy of mumbo jumbo, denial and mendacity to cover obscenely stupid incompetence and mendacity (with a bit of Latin chucked in to obfuscate, although this is becoming rare now) will not thrive well when multiple providers get in on 'the action' of the once holy cow, reduced to cash cow domain of the NHS. Quite amazing what flops out of the rubble sometimes when the dust settles.

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  3. Well my friend Anon, do not place too much faith in the market place to right the wrongs' of past times. It is 'skewed' in favour of those that perpetrated them in the first place.

    The evolution as you put it has in fact already taken place in many areas, that is why we have Foundation Trusts, which all Hospitals have to become in the 'brave new world' of the HSCB. The usual suspects already have the foot in the door, with a 'leg up' from the Coalition without much competition as was always the case. The agenda is based on the US model of private provision at the expense of the taxpayer which in my view is no competition at all. There will be no place for 'cures' only treatment protocols for which the science is dubious and the outcome profits, at the expense of better health. Denial, obfuscation and incompetence will continue unabated. I have seen it in Power Generation, The Railways, Defence Procurement, Prisons and much more. The price is and always will be that which the market will stand, not the provision of a service with a cost plus a margin for profit.

    Most small providers, who work on that paradigm, will as always be forced to the wall, with the conglomerates being favoured to cherry pick the areas that yield the most for the least input. The touching belief that the cream rises to the top has always been trounced by the similar truth that so does the scum.

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