The billions of pounds worth of commitments tied up in Britain's "public, private" state must be opened up to transparency and scrutiny, argues a new OurKingdom report.
The spending review, announced this week, promises £81 billion worth of cuts over the next four years. Whilst services face the deepest cutbacks in generations, billions of pounds a year will still need to be found to finance our PFi commitments. Amidst all the talk from government ministers of “efficiency” savings, there has been almost no mention of PFI and its legacy on the public purse.
There have already been warnings about the ability of the NHS to maintain service levels under the increasing burden of PFi repayments. Welfare and benefits are also due to be slashed, leading to a substantial fall in living standards for people across the country. Against this backdrop the public will continue to pay billions of pounds a year for schemes they are unable to scrutinise. The position is no longer tenable. For the Coalition’s principles to rise above mere rhetoric, the PFi contracts must be released.
The following report (pdf), published by OurKingdom today, sets out the urgent need for an extension to the present Freedom of Information Act to encompass all contracts within the “public private” sector, including the Private Finance initiatives (PFi). The ‘public private’ sector is estimated to be worth £80bn a year in Britain. Despite the enormous sums involved and the regular stream of controversy that PFi has provoked, the contracts under which the public will pay these vast amounts remain private.
The Coalition government has put great emphasis on “transparency” and “accountability”, the right of the public to know exactly how their money is being spent. There is no such thing as a transparent state under which £260bn of public commitments remain shielded from scrutiny. At a time of serious economic austerity, the case becomes unanswerable.
PFi is a model of public procurement under which the private sector raises the finance and funds the construction of public buildings such as hospitals and schools. This is then repaid by the public who lease the buildings from the private contractors, typically on 30 year contracts. To attract private interest, significant profit margins are required. From the Treasury’s own figures, we are already committed to paying £260bn for buildings valued at only £60bn. The contracts under which the schemes operate are exempt from Freedom of Information (FoI) requests for reasons of “commercial confidentiality”.
As the report shows, from its inception, PFi has proved extremely controversial and in serious need of public scrutiny to ensure taxpayer value. The Skye bridge, Britain’s first PFi venture, cost the public an estimated £93m pounds, all considered, for a bridge that should have cost £15m. As part of the agreement, the ferry crossing was closed on the day the bridge opened, removing any other means of making the crossing. The consortium then charged what were believed to be the highest per mile tolls in the world: £5.70 for a 1 mile crossing. And so PFi has continued, from charging over £300 to replace lightbulbs, to making police officers phone a hotline to get toilet roll replaced to a scheme that made a 662% return for its investors.
The history of PFi has been a one of frequent failure, unaccountability and extraordinary levels of state largesse. To make matters worse, a number of former ministers and civil servants have gone on to work for the very firms rewarded under the PFi give away.
PFi should not be considered a party-political issue. It was a Conservative creation initially, but the majority of PFi schemes were signed off under the last Labour government. In opposition, both Vince Cable, business secretary, and George Osborne, now chancellor, voiced strong criticisms of PFi. In 2009, Vince Cable labelled PFI, “a dishonest system of accounting, designed to hide taxpayers' liabilities." That same year George Osborne told us, "The first step is transparent accounting, to remove the perverse incentives that result in PFI simply being used to keep liabilities off the balance sheet… Labour’s PFI model is flawed and must be replaced”.
In government, however, business has continued much as usual; Osborne has already signed off his first PFi project. With all three major parties implicated, there is unlikely to be any call for action from within Westminster. The last time the collective secrecy of the political class was challenged the results were dramatic: the expenses scandal.
David Cameron has said that "Greater transparency is at the heart of our shared commitment to enable the public to hold politicians and public bodies to account". With deep and rapid cuts across the public sector, the case for extending transparency to Britain’s substantial PFI commitments could not be stronger.