It's time to pull plug on this big business profits generator

PFI scandal: UNISON's head of bargaining and campaigns, Dave Watson, argues why it's time to pull the plug on private finance initiatives. (Daily Record, April 23, 2012)

Bungling maintenance crews turned the power off at Edinburgh Royal Infimary last week while an operation was still being performed. The ERI is a private finance initiative hospital, which means a company own and run the facilities. The terrifying blunder again put the spotlight on PFIs and similar public and private sector joint ventures. In today's Daily Record, Dave Watson explains why Scotland's largest public service trade union has always been opposed to PFIs.

The shocking picture of a surgeon stitching up a patient by torchlight in Edinburgh Royal Infirmary shows the risk of trusting private finance with public services. Here is a company getting £60million a year from the taxpayers and seemingly they can’t even keep the electricity meter fed.

Public Private Partnerships (PPP) is the umbrella name given to a range of schemes that give the private sector a chance to make money from schools and hospitals. The Private Finance Initiative (PFI) is the most common.

The key difference between PFI and normal ways of providing public services is that the public do not own the asset. The council or health board make an annual payment to a private company who provide the building and associated services.

Unison and others have consistently warned of the dangers of involving the private sector in delivering public infrastructure through PPP/PFI deals. They tend to be more expensive, inflexible, lack transparency and do not provide taxpayers with good value for money.

But the companies involved make millions.

PFI schemes cost much more than conventionally funded projects because governments can borrow money at much lower rates than private companies. The Commons Treasury Committee found the capital cost of a typical PFI project is eight per cent – more than double that of government borrowing. Audit Scotland have calculated these costs as adding £200,000 to £300,000 each year for every £10million invested.

Adding in other payments, UNISON Scotland’s At What Cost report calculated the additional cost of PFI schemes at £2.1billion.

You don’t have to take our word for it.

In April 2011, the National Audit Office (NAO) urged the UK Government to find alternative ways of funding major projects because of the high costs of PFI. They warned that the scheme had become increasingly expensive owing to the credit crisis.

And in August last year, the Treasury Select Committee “found no convincing evidence that savings and efficiencies made during the lifetime of PFI projects could offset the higher cost of using private capital rather than government borrowing”.

Supporters of PFI argue that it transfers risks to the private sector (but anyone in Edinburgh Royal last week will find that hard to believe) and that makes PFI value for money.

However, that claim doesn’t stand up to scrutiny. The National Audit Office have called the value for money calculation “pseudo-scientific mumbo jumbo.” When public finances were growing, these additional costs could be masked.

But UNISON warned it was likely that over the 25 or 30 years of a typical PFI contract, Scotland would face spending cuts.

The running cost of PFI schemes in Scotland is now almost £1billion a year and the share of public money being spent on PFI payments is growing. Unlike other budgets, you can’t cut PFI payments – the contractors and the bankers always get their cash.

Sounds familiar doesn’t it?

But isn’t this just a history lesson? Despite claiming they were against PFI, the SNP Government have set up their own version – called the Scottish Futures Trust.
This was meant to be a different way of doing things, but the trust are in charge of a £2.5billion Scottish Government PPP programme, one of the biggest of its type in Europe.

They have rebranded them as Non-Profit Distributing (NPD) or hub schemes and, in fairness, they are better contracts. But the expert adviser to the Commons Treasury Committee points out the long-term cost to taxpayers of NPD is “similar” to that of the classic PFI model and that all it really does is “make PFI a bit more politically acceptable without changing any of the economics”.

So where does all this leave NHS Lothian and its torchlight operating theatres?

If this was a normal service contract they could claim breach of contract and either replace the contractor or more sensibly bring the service back in house. But with PFI they don’t own the hospital. Consort Healthcare own it and bizarrely still will even after having received £1.28billion of public money by 2028.

They could buy the contract out as the government did with the Skye Bridge, but that will be costly in these straightened times. That leaves the option of re-negotiating the facilities management aspects of the contract. The aim should be to liberate the £60million a year paid to Consort for running the hospital and doing the job properly in-house as in a normal NHS hospital.

There’s precious little comfort in saying, “I told you so!” But we did warn of the costs, inflexibility and failures that would follow PFI.

Governments of all colours have chased a financial illusion, the taxpayer is picking up the bill and big business is laughing all the way to the bank.

You can read the full article on the Daily Record's website by clicking here