If you want to understand what New Labour in general, and Gordon Brown in particular, is all about, you need look no further than the so-called private finance initiative (PFI). A report from the Commons public accounts committee (PAC) today confirms that PFI is simply a government licence to print money at the taxpayer’s expense. Chancellor Brown has pioneered PFI deals, imposing them on hospitals, schools and the London Underground. These long-term deals, through which the public sector leases back buildings or pays for new computer systems, have proved much more costly than projects directly financed through taxation. Some NHS trusts, for example, have had to build smaller hospitals than planned or reduce staff to make sure they can meet the payments to the private owners. PFI money has also been used to modernise school buildings and even build new schools. In Northern Ireland, the newly built Balmoral High School is to close next year because of a fall in pupil numbers. Yet the Northern Ireland Office is obliged to pay £7.4m to continue leasing the school until 2027! While PFI began under the Tory governments, few were actually signed by the time New Labour took office in 1997. Since, then getting for a 1,000 deals have been signed or are planned with a value of nearly £90 billion. In return for building hospitals or schools, corporations are offered, in effect, a guaranteed income stream. Not satisfied with that, companies soon discovered they could make even more money by refinancing the deals. As early as 2001, the health union Unison warned that many PFI contractors were changing the terms of their borrowings to increase profits by as much as 80%.
Central to the refinancing scandals is the Norfolk and Norwich hospital PFI scheme, which the PAC had already branded "the unacceptable face of capitalism" after it emerged that refinancing had increased the investors' rate of return from 16% to 60%. The London Health Emergency recently estimated that new PFI schemes in London, Birmingham and St Helens will produce windfall profits of £440m for the companies involved. And, it reckons, the private sector stands to make £2bn worth of bonus payouts from £10bn worth of PFI schemes in the pipeline. After some pressure from the National Audit Office and the PAC, the Treasury agreed that the benefits of refinancing ought to be shared between the contractor and the public sector. You will not be surprised to learn that that the private sector has been running rings round public officials who don’t have the expertise to cope with complicated refinancing deals. Today’s PAC report admits that officials face being "outwitted by their commercially-sophisticated private sector counterparts". Public bodies had only got back £93m by the end of last year, "well short of expectations". That is to say nothing of the profits made by companies selling on their shares. These gains are not shared and are another form of windfall profit. As Brown prepares to become the next New Labour prime minister, the private sector is rubbing its hands in anticipation. The merging of corporate, state and political interests is a distinctive feature of New Labour. Under Brown, the relationship is certain to become even closer than it was under Blair.
Paul Feldman, communications editor