Think Carillion is bad? wait until you see what the government wants to do with the NHS

Carillion already has a raft of NHS Private Finance Initiative (PFI) and Local Improvement Finance Trust (LIFT) contracts in the NHS, including owning and operating 11,000 hospital beds in a dozen NHS hospitals in England and Scotland as well as several General Practitioner (GP) surgeries and community services.

During my recovery from a life-threatening road accident, I sat down with a doctor for a conversation that was memorable for reasons that had nothing to do with medicine.

As we were wrapping up they asked about my job. I’m a journalist, I said, I write a lot about finance. At this their ears pricked up. Had I, perhaps, come across the Government’s Private Finance Initiative (PFI)?

It was here that things got interesting. I had, I said, I think it’s a con. My doctor sighed heavily. They then touched their hand to their forehead and declared: “You don’t know the half of it.”

Under PFI, private companies – one by the name of Carillon has been much in the news of late – take responsibility for the financing, design, construction and maintenance of schools, hospitals, prisons and many other big projects.

For that, they receive regular payments for many years afterwards, decades in fact. Those payments are frequently so onerous that they can end up being even more crippling than the cement truck that ran over me. That is not an exaggeration.

In an impassioned monologue my doctor said that while the hospital in which we sat was shiny, and new, and gorgeous, it was so short of cash it could barely afford the material for sutures. For those who haven’t come across the term, they are what’s used to stitch up wounds. A hospital that can’t afford something that basic is in real trouble.

The scheme had reduced this kind and compassionate professional to a state of helpless fury. Whenever I hear the term “PFI” now I remember our conversation. It’s the sort of thing that sticks with you.

Sold as a whizzy new way of financing important projects, PFI was driven by a mixture of questionable ideology (private always does things better), dodgy accounting (it takes debt off the state’s book although the state still has to repay it) and dubious accountants (the fees for advising on these things can be breathtaking).

The discussion with my doctor provided a vivid demonstration of how the arguments put up in favour of it turned to ashes on the ground. I’ve since had many similar such conversations with many similar such professionals driven to despair through working at PFI-funded facilities.

Yet despite the mounting weight of evidence of something deeply rotten with the system it has rolled on, albeit with new packaging (PFI became PF2), they’re really not all that different.

Now the National Audit Office (NAO) has weighed in with a report that rams the point home.

The NAO says there are 700 of these things now operating in Britain, worth £60bn in total. Annual charges in 2016-2017 amounted to £10.3bn. Future charges, which will continue through the 2040s, amount to a staggering £199bn.

Needless to say, that adds up to an awful lot of sutures, not to mention consultations, crutches, wheelchairs, operations, whiteboards used by PFI schools, textbooks and salaries for public sector workers.

Someone at the NAO clearly has a sense of humour because in the report’s introduction it says “we do not form a view on value for money”.

Shortly afterwards it goes on to state, however, that “our work on PFI hospitals found no evidence of operational efficiency; the costs of services in the samples we analysed were similar”. One of the key benefits touted for PFI is that the private sector is supposed to be more efficient.

It also has this to say concerning London hospitals: “The cost of services, like cleaning, is higher under PFI contracts.” Another selling point the Government has sought to use is that the private sector does things like cleaning more cheaply.

The report has better things to say about the quality of maintenance when it comes to PFI buildings vs non PFI buildings. But it suggests that standards at the latter could be lifted to PFI levels if the Government simply ring-fenced maintenance budgets.

The real killer, however, comes when the NAO gets around to a discussion of the financing.

Governments can borrow at much cheaper rates than private enterprises can, even when the markets view those enterprises as operating with a de facto state guarantee (as with banks). As a result PFI deals are almost always ruinously expensive and poor value for money.

The report cites the analysis of a group of PFI schools showing “that PF2 costs are around 40 per cent higher than the costs of a project financed by government borrowing”. It also points to a Treasury Committee analysis estimating the cost of a privately financed hospital to be 70 per cent higher than if it had been funded directly by the Department of Health.

The NAO might claim that it draws no conclusions about value for money. But with figures like that it really doesn’t need to.

Here’s the clincher. One final benefit of PFI that the Government likes to talk about is the way it supposedly poses less risk to the taxpayer by transferring it to the PFI company.

That was debatable even before Carillion’s collapse. Now? It’s a bad joke.

The PFI system is more broken than my body was when the truck hit it. It needs to be scrapped.

So what do you think?

Tell us in the comments.

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