We need to learn the lessons of PFI says John lister, the author of a new comprehensive history of the how the policy affected the NHS.
The announcement by British Chancellor Philip Hammond last November, in the costly aftermath of the collapse of major contractor Carillion, that the Conservative government would be signing off no more projects funded through the Private Finance Initiative (PFI) (better known around the world as Public Private Partnerships, or P3s) might seem to be the end of an era.
It came after firm statements from the current leadership of the Labour Party that it had not only abandoned the party’s previous support for PFI, but was determined to bring hundreds of projects funded through PFI back “in-house.”
In other words, both of the major parties that had most avidly embraced PFI in Britain, where it began, appear now to have now learned the hard way that the policy did not deliver its promised benefits, but carried expensive consequences.
Yet the grim legacy of PFI contracts signed in the past and still operational lives on, not least in the health service in Britain, where 125 projects valued at £12.4 billion were signed between 1997 and 2017, but are set to cost almost £81 billion in “unitary charge” payments running into the late 2040s.
Hospital financial deficits, problems with the inflated cost, and restricted size, design, quality and safety of buildings constructed by PFI consortia all continue as daily problems in Britain.
The same is true in many other countries around the world which unwisely followed the model of PFI and used private capital to construct hospitals, to be paid for on complex, index-linked contracts covering maintenance and support services lasting for periods up to 40 years.
How to limit the financial cost and the impact on health services of these ill-conceived projects, and their aftermath, is a live issue which will be with us for a generation to come.
That’s why I would argue my new book on PFI and PPPs, Unhealthy Profits, is still very relevant now even though the heyday of PFI deals being signed off wholesale by Tony Blair’s government from 1997-2010 is now over.
The book, which was commissioned and published by a local branch of the health union UNISON where they have been fighting PFI and its consequences for over 25 years, is in three sections: the theory of PFI (how it was supposed to work); the experience in practice (focused on a case study of the UNISON branch and the issues it faced in Mid Yorkshire); and what to do about it.
An extended Postscript examines the global spread of PFI and shows the extent to which the same flawed model has generated similar problems in very different health care systems around the world, not least the disastrous hospital project in Lesotho driven by the World Bank. Yet even now a new ‘Global Health Group’ at the University of California San Francisco featuring former World Bank executive Richard Feachem is working with management consultants PWC in an effort to whitewash over some of its flaws and promote the P3 model.
From its inception in Britain in 1992 PFI was a device to open up public sector budgets to create profitable opportunities for construction companies, service providers, banks and finance houses (as well as lawyers, accountants and management consultants like PWC).
The theory – since largely abandoned – was that because the borrowing was done by private consortia, and the buildings were effectively leased until the contractual payments were complete, this would not impact on levels of public sector borrowing.
However, like any hire purchase agreement it meant the public sector bodies would wind up paying much higher interest, and having to finance the new projects from limited revenue budgets. Contracts were tightly written to ensure PFI payments were a first charge on revenue, regardless of the consequences. In some hospitals this meant whole floors built but left unused to avoid staffing costs.
The book reviews academic literature and other studies to show that all of the arguments justifying the higher cost of PFI compared with conventional government borrowing – promises of “innovations”, “efficiencies” and that risk would be transferred to private consortia, have proved illusory. Expected tax revenues from consortia evaporated as profitable PFI contracts were sold on to firms in off-shore tax havens.
So what is to be done about PFI/PPPs? Unhealthy Profits takes a critical look at and dismisses various ideas, from buy-outs, defaults on payments and a windfall tax on excess profits, but concludes that the plan developed by Labour Party advisors to nationalise the small companies (Special Purpose Vehicles or SPVs) at the centre of PFI contracts offers the best hope of bringing the projects into public ownership and control. * The book, normally £7.50, is available to download from Amazon. A 288-page paperback version is also available online priced at £9.99. This article first appeared on Oxfam’s Global Health Check