Tuesday, November 21, 2006

A goose that lays golden eggs

For an average person, spending more money than they have is certain to result in ever-growing debt, unless they are lucky enough to know someone who is prepared to bail them out. Paying off debt, especially on credit cards, seems never-ending as the outstanding amount hardly ever seems to go down. Students are now leaving university with up to £20,000 in outstanding loans and it’ll take them a good deal of their working lives to get straight. When the story switches to the lives of private-sector corporations, the contrast is stark. Here, for example, you can run up debt and then go bankrupt quite legally. Directors are personally free from liability under the laws that govern companies. It gets even better if you are involved in the win-win schemes under the government’s “private finance initiative” (PFI) or the even more exotically-named “private-public-partnership” (PPP). In this case you are guaranteed profits, whatever the outcome.

The latest scandal in this sector is on the London Underground, where millions of passengers endure nightmare journeys day in and day out as the system reaches breaking point. Gordon Brown, who seems set to replace Tony Blair as the New Labour prime minister next year, insisted that modernisation of the London Underground could not be left in the hands of the elected Mayor and created a Byzantine PPP scheme instead. Two private sector consortia were put in charge of the Tube system and it is estimated that this private finance scheme has added £450m to the investment bill faced by fare payers and council taxpayers. That’s not the end of the story, however. Now comes news that the consortia Metronet expects taxpayers to pick up most of an estimated £750m overspend on investment. Under the PPP contract, Metronet, which makes profits of £1m a week, is required to pay only £100m of the overspend, with the rest falling on hard-working Londoners through the council tax. Metronet’s claim comes after an independent assessor slammed the company for falling “significantly behind schedule” with its station modernisation programme and for “poor delivery of maintenance and renewals”. The Metronet scandal is just one of many involving PFI/PPP. In June 2005 a leaked government report said that a new privately financed hospital in Leeds had "breached every section of the fire safety code". The PFI Skye Bridge infamously cost the public £93m (and required the closure of the existing ferry to prevent competition), although it should have cost only £15m to build. The enormous scale of PFI projects in the health and education sectors since 1997 is now having a serious impact on budgets. Because the projects cost on average 30% more than if they were directly financed, paying for schemes is one key reason why hospital trusts are in serious financial difficulties all over the country, shutting wards and departments and sacking staff. Meanwhile, the private sector is laughing all the way to the bank as the PFI goose lays golden eggs. The trade union bureaucrats whose members are losing their jobs are queuing up to back Brown, Mr PFI himself, to succeed Blair as leader of the big business New Labour government, which just so loves redistributing wealth from the public to the private sector. Are these union leaders actually living in the real world? As far as Brown as successor to Blair is concerned, it is, as the French say, plus ça change, plus c'est la même chose.

Paul Feldman, communications editor

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