Monday, January 16, 2006

PFI Panic


In principle the Private Finance Initiative could be a good deal for taxpayers. Instead of trying to build and maintain hospitals and schools itself, the government gets private sector specialists to compete for the job. Not only should the price be lower, but the risks of things like project overspend are transferred to specialist operators who are better equipped to manage them. Everybody should win by eliminating waste and inefficiency. Hurrah.

Yes, well...sadly it hasn't always worked out quite like that. For one thing, the government has used PFI principally as a tool to borrow off-balance sheet. The best estimate is that PFI debt now amounts to a chunky £60bn. And the pressure to borrow covertly means they have driven through deals which would have been cheaper funded directly by the public sector.

There's also a suspicion that our commercially naive hospital trusts and education authorities have not always cut a good deal for taxpayers. It's clear that many of the early PFI deals have subsequently yielded substantial refinancing gains to the contractor/bank consortia that did them.

Of course, just like a mortgage, all of these deals commit some public sector entity- such as a hospital trust- to a stream of payments stretching many years into the future. And the sums can be big, say a quarter of a hospital's annual income for the next 25 years. If they don't pay up, they can expect the bailiffs. Whatever the spin says, this is public sector debt.

Now, finally, the Treasury seems to have woken up. Hospitals could go bust, just like the PFI Queen Elizabeth in Woolwich, whose Chief Executive says:

"In traditional commercial terms we are insolvent - and we are not alone. We are relying on temporary cash borrowing to enable us to pay our creditors, staff and PFI partners. It reaches a point where there is no way out on your own. Somebody is going to have to come along and restore our balance sheet."

That "somebody" of course is the Treasury. Time to hit the panic button.

Which is why they've just pulled the plug on the biggest PFI deal of all- the £1.2bn Barts/Royal London rebuild. Well, strictly it's Commissar Hewitt who's done the deed ("We have not ordered a review of the whole Barts and London PFI scheme. We have simply asked the local NHS to commission an independent review looking again at the proposed redevelopment"- hmm, I see).

Unfortunately for us taxpayers, the PFI consortium involved- Innisfree/Skanska- have met these panicky prevaricating politicos before. They evidently took the highly sensible precaution of getting themselves a contract. Which reportedly says "if the scheme is not approved by the end of January, Skanska will be entitled to leave the project claiming £100m costs, or continue on the basis that it will be paid more".

So that's another £100m down the drain, then.

How many MRI scanners is that?

The Docs at Barts/Royal are naturally up in arms, demanding Tony step in. Fat chance of that. Perhaps their time would be better spent sorting out the Commissar's arse and elbow problem.

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