17 October 2019


28 September 2017

Standing above the parapet

There is a positive case to be made for private finance, despite what the Labour hierarchy might think. Whether anyone will make it today is far from certain

Visiting some friends at the weekend, their eldest boy was excited to watch his team, West Ham, on television.

At half-time he came in to see his parents and glumly declared that, with his beloved Hammers 2-0 down against London rivals Tottenham, he was instead going to play Fifa on his PlayStation. Far better to take himself off into a world where his team would no doubt defeat Spurs (and anyone else) than watch another inevitable defeat play out back in painful reality.

I was reminded of this impulse to ensconce oneself in an alternative reality in which improbable outcomes could be comfortably and satisfyingly delivered when Labour’s John McDonnell announced his plans to bring PFI contracts back in-house. To great cheers and a standing ovation at this week’s Labour Party conference, McDonnell chanted: “We’re bringing them back!”

Perhaps the most bizarre thing about this determination to cancel a raft of contracts signed in good faith– notwithstanding the fact that the vast majority are working well and delivering good value to the taxpayer – is that Labour apparently believes it can get rid of these ‘bad deal’ by borrowing massive sums of money to do so.

It was telling that there seems to be little understanding of how exactly any mass buy-back would work, given that shadow chief secretary Peter Dowd was heard to insist that the buy-back would be “self-financing”, whatever that means.

Labour seems to think that borrowing huge sums of money is somehow better value for money than using existing revenue to pay off money that was originally effectively borrowed from the private sector. Quite who is going to lend the government this money is not clear – presumably it will be from a renationalised Bank of England. It certainly won’t be the various investors who will have been spooked and therefore have little or no confidence in the British government’s ability to keep to its promises.

Whenever PFI is discussed in the national discourse, it is generally accompanied by phrases such as ‘borrowing on the never-never’, or ‘mortgaging future generations’. Why such phrases are not applied to public sector borrowing is never really made clear, other than a vague ‘public sector good’, private sector bad’ notion.

Like my friends’ son, it seems Labour’s hierarchy would now rather play in a world in which it doesn’t really have to engage in the reality of contract law, compensation or the need of private enterprise in the UK economy.

However, with Labour continuing its surge in the polls, it must surely be time for the industry to finally make the proper case for why private finance should not be considered a pariah.it won’t be easy, as I have found myself.

I once decided to take a newspaper columnist to task over their framing of the PFI model, and went to great length in an email to explain why it is not simply a case of subtracting the capital value of a building from the overall contract value to find out how much profit the private sector made. The response was both interesting and depressing:

“This is an interesting counter view. I’ve never actually heard anyone defend PFI before.”

This demonstrates just how little opposition there is to the standard view that PFI is bad. With the Treasury having abandoned its plans to launch a PR campaign on the benefits of PF2, it must now be up to the industry to make the case – if it has the appetite to do so.

However, it was the second part of the columnist’s answer that was most disheartening – and shows the scale of the challenge in front of whoever takes on the orthodox view:

“Some of these deals were terrible though – and the cost will be enormous at the end.”

Having spent seven or eight paragraphs explaining that not all PFIs are bad, and that publicly procured projects such as the Edinburgh trams fiasco or the Scottish parliament are at least as prone to problems, it is hard to know how to counter that comeback. The negative perception is so ingrained in people’s minds today that reasoned argument and explanation will take time to counter that long-held view.

It is, no doubt, an argument worth making. But with many investors tending to work with local authorities on joint ventures and similar arrangements these days, it is far from certain that anyone will make it. Such an argument will also need proper evidence to counter the myths and rhetoric, but that will require private entities to be bold enough to share their information and data with rivals.

Some may baulk at this. But a failure to engage with this debate could well see future private investment in infrastructure wither and die out, particularly in the event of a Labour government. Such a position isn’t just bad for investors – it is ultimately bad for the infrastructure and public services of the country.

In the end, the public versus private ideological standpoints are irrelevant. What matters is providing good public services in good quality buildings. All approaches to doing that should be on offer. Deciding one way is always bad and another always good is not only wilfully misleading, but it is damaging to future generations.

‘Borrowing on the never-never’, ‘mortgaging the future’? Buying now and letting those using the services pay for them when built always seemed like a sensible suggestion to me. The question no-one seems to have asked of the Labour hierarchy is: how is borrowing even more now to pay off these contracts any better?



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Standing above the parapet


There is a positive case to be made for private finance, despite what the Labour hierarchy might think. Whether anyone will make it today is far from certain

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