Paying for PFI

There is nothing as dangerous, they say, as the zeal of the newly converted. So it was when Labour under Tony Blair suddenly discovered capitalism. What had been a small-scale pragmatic policy under John Major’s government, the Private Finance Initiative (PFI), was taken up with huge gusto in order to see the rebuilding of hundreds of schools and hospitals. Gordon Brown loved it too, because, although less wedded to private enterprise, he spotted a way of fiddling his borrowing figures: by shifting billions of pounds of new investment off the government’s books.

We ended up with a deficit of £160 billion anyway. But on top of that, the real cost of PFI is becoming ever more apparent. This week the government had to take over South London Healthcare, an NHS trust, before it succumbed to the annual payments it must fork out to the consortia which rebuilt its three hospitals. Now it transpires that 22 more trusts may similarly be in danger. Astonishingly, considering its budget has more than trebled since 1997, the NHS is facing bankruptcy bit by bit.

Considering that one of the arguments for PFI was supposed to be that it transferred risk from the taxpayer to private investors, it has all become a bit of a sick joke. Unless NHS trusts can find a way of wriggling out of their contracts they face having to shell out an eventual £70 billion to PFI companies — all for £11.4 billion worth of hospitals, many of which may become obsolete well before their 30-year PFI contracts expire. Had the government simply built the hospitals with borrowed money it would, as with its other debts, be paying 2 per cent interest.