Claims made by supporters of the Private FinanceInitiative amount to nothing more than smoke and mirrors. GMB is calling for:
4 A moratorium on any furtherPFI projects
4 An independent review ofvalue for money under PFI
4 Fair Wages legislation toprevent PFI contractors cutting public sector wages & conditions &perpetuating a two-tier workforce
4 Promotion of alternativeforms of capital investment with greater freedoms to borrow generally availablein the public sector
CLAIM: Reformsto PFI now mean that public services workers interests are fully protected
GMB RESPONSE:
The Code of Practice devised by the Government to dealwith the two-tier workforce contains major loopholes and there are no effectiveenforcement mechanisms
There is no two-tier code for workers in the NHS andother public services
Measures to protect workers affected by PFI deals havebeen piecemeal
PFI contractors are not obliged to pursue the admittedbody model, which opens the local government pension scheme to workers forcedto transfer and to new starters. Yet this is the only effective way to protectpension rights. And its not available at all to workers in other publicservices.
The NHS retention of employment model allows workers incertain trades to remain NHS employees under a PFI scheme, but it leaves outsignificant groups of workers like supervisors and maintenance workers
There is no equivalent to the retention of employmentmodel for workers in local government or other public services
PFI efficiency depends on cheaper labour costs. Forexample analysis of lower costs per prisoner in four PFI prisons in 1997/8showed this was entirely due to lower staffing costs eg 14,000pa for aprison guard as opposed to 22,000pa for a Prison Service officer
CLAIM: PFI brings in additional investmenton top of whats available through the public purse
GMB RESPONSE:
The level andmethod of investment in public services is a political decision. The Governmentcould have decided to fund all current PFI investment publicly instead without breaching the Chancellors GoldenRule or pushing public debt above 40% of Gross Domestic Product
Theargument over whether PFI permits more investment than conventional Exchequerfinancing is a red herring. The taxpayer will eventually pay, either way. John Sussex, Associate Director of theOffice of Health Economics, in The Economics of the Private FinanceInitiative in the NHS, April 2001
PFI investmentswitches costs from capital to revenue budgets. Thus public revenue is ring-fencedover decades as guaranteed payments to PFI contractors, regardless of how muchis available to future generations to cover essentials like staffing costs
Government policy requires PFI assets to beoff-balance sheet yet substantial liabilities are not appearing on theprivate contractors balance sheet either, leading to concerns aboutEnron-style collapses
CLAIM: PFIprojects only get the go-ahead if they pass a rigorous value for money test
GMB RESPONSE:
One of the key tests for Governmentapproval of a PFI project is that it should come out cheaper than a Public Sector Comparator (PSC). Thisis supposed to be an assessment of what the project would cost if it waspublicly funded. Yet such assessments are almost universally discredited.
Utterrubbishpseudo-scientific mumbo-jumboNo-one, noteven the experts, really understands whats going onIf the answer comes outwrong you dont get your project, so the answer doesnt come out wrong veryoften. Jeremy Colman, Auditor-General,National Audit Office in Financial Times, 5 June 2002
Haringeycouncil added 4.8m to the cost of the PSC when assessing its schools PFIproject. This, they said, was because1% more school leavers would gain a job, crime would fall, civic pride wouldincrease and the quality of life generally improve but ONLY if the school wasfinanced and operated by a private consortium, as opposed to in the publicsector.
Melanie McFadyean & David Rowland in PFI vsdemocracy, school governors & the Haringey schools PFI scheme, 2002
PSCs do not take account of different costs of publicvs private borrowing
Currentapproaches to the PSC take no account of the higher cost of private financecompared to council borrowingThe PSC/PFI comparison on its own cannot providedecisive evidence of Best Value.
Audit Scotland inTaking the initiative: using PFI contracts to renew council schools, June2002
PSCs are paper exercises because Treasury restraints onborrowing mean there is no realistic chance of getting a project built throughpublic funding. For example, in the NHS there is a cap on publicly fundedcapital expenditure but no such cap exists for PFI spending
Therecent emphasis on PFI means that evidence of the outcome and effectiveness oflarge-scale schools procured by traditional methods is rare. The danger is thatdecisions in favour of PFI procurement may be driven bystereotypes of poorly performingalternatives rather than good evidence of demonstrable benefit.
Audit Scotland, June 2002
Itwasnt the road we wanted to go down but we werent going to get anything else
School governor in Haringey in MelanieMcFadyean & David Rowland, 2002
PSCs are based on wildly exaggerated estimates of howmuch risk transfers to the PFI contractor
The cost of PSCs is inflated by a 6% discount ratebecause PFI construction costs are spread over decades, rather than paidup-front. Yet this is widely held to be too high
For NHS PFIschemes the estimated net benefit would disappear if the annual discountratewere reduced from 6% to a more appropriate 4%.
John Sussex, Office of Health Economics, April 2001
CLAIM: PFIis efficient because the private sector takes risk away from the public sector
GMB RESPONSE:
18 of the first 31 PFIs in the NHS have suffered timeover-runs with an average delay in starting work of 12 months
The average over-run on cost of publicly-funded NHScapital projects has fallen to 7%, yettypical PFI projects assume figures of 12% or more (in some cases up to34%) as a saving associated with using PFI
Risk transfer is more theoretical than real and notalways enforceable. This rebounds on the public. The upshot of the problemswith the IT project at the Passport Agency was that the public had to payhigher charges for passports no penalties were imposed
Alarge roof section was ripped off by gale-force winds...Last night, a rowemerged over penalty clauses in the contract between East Renfrewshire Counciland Jarvis, the construction firm that built the schoolA council spokesman saidJarvis could face penalty clauses amounting to thousands of pounds However, aspokesman for Jarvis refused to accept that the company was at fault.
The Scotsman, 2 February 2002 [In this case thecouncils Direct Labour Organisation had to step in to do the repairs]
Most PFI contracts do contain penalties for failure toperform, yet these are often capped. And Government ministers are oftenreluctant to apply them for fear of damaging relationships with key companies
Risk transfer does not come cheap PFI contractorsprice it in. Construction is the most risky phase, after which contractorsfrequently refinance at windfall profits
PFI offers contractors higher rates of return thanconventional construction contracts, typically 14-20%
PFI contractors inject very little capital into thespecial project company they set up to run the scheme. If problems arise theycan walk away
CLAIM: PFIis different from privatisation because the public sector retains a role as theclient
GMB RESPONSE:
If service needs change or disappear over the decades,the public sector is locked into paying for exactly what was in the originaloutput specification
Thereare strategic questions about whether the specification was fully suitable over the 25 years contractthe PFI schools can accommodate some 6,100 pupils,20% more than the forecast maximum of 5,100 pupils by 2007 and it is not clearthe council achieved the optimum balance between capacity and demand. [Falkirkschools project]
Audit Scotland, June 2002
TheNHS is currently procuring over 70 new conventional hospitals, all on the basisof 30-year long PFI contracts. The 2020 vision study suggests that many ofthese buildings could be largely obsolete well before the end of this period,despite the fact that the tax-payer will still be paying for the capital costof the buildings.
Commission for Architecture andthe Built Environment, 2020 vision: Our future healthcare environments, June 2002
The community loses the use of its assets. Most PFI schoolsare based on annual availability of around 210 days. For the rest of the yearthe PFI contractor has use of the building for commercial purposes
Not only were PFIs expensive, they have created anumber of problems in education that did not exist before. For example, becauseof problems with access to PFI schools, we have great difficulty meeting theScottish Executives directive on community schoolsOne would envisageindividuals using sports and leisure facilities at a community school but that causesproblems in PFI schools as they are run for profit after school hours.
David Alexander,Leader Falkirk Council, quoted in PFI ineducation, a dossier, Public Service Insight, September 2001
Our public services are being configured to suit theneeds of PFI bidders rather than service users. Examples: Kidderminsterhospital forced to close to pay for the Worcester Royal Infirmary PFI project;Pimlico school project based on unnecessary new build instead of refurbishment
CLAIM: PFI isonly a modest part of public spending
GMB RESPONSE:
In its first five years, the Labour Governmentincreased total investment in public services by 20billion nearly half ofthat came from private finance
Since May 1997, 64 out of 68 major hospital developments are PFI-funded
Local councils repeatedly say PFI is the only game intown because of the availability ofPFI credits and the controls on other forms of borrowing
Government figures understate the true extent of PFIspending because they do not offset cheap land sales and asset transfers to PFIcontractors. Nor do they include the capital subsidies/grants which go toservice PFI