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The killer argument against PFI

privatisation, pic by Banner TheatreWe have always known that PFI was a con trick (i) to take construction and management costs of hospitals and other public buildings offline so they don’t appear in the national accounts, and (ii) to secure the extremely lucrative privatisation of yet another public service at taxpayers’ expense. But the evidence of how the new outsourced authorities manipulated this fiddle has not hitherto been made so blatantly transparent as in the latest case to come to light.

Six months ago the Treasury approved a PFI for the £360m Midland Metropolitan hospital in Birmingham. As a result the Sandwell and West Birmingham Hospitals Trust will be forced to pay out £18m for 30 years, i.e. £540m in total – an extremely bad deal for taxpayers. So how was it ever justified in the first place? Answer: the NHS Trust Development Authority, that is the hospital’s regulator, opined that “income growth assumptions are significant”. With the NHS in its near-bankrupt state plus the intention to move care out of hospitals over time, this is not just a heroic assumption, it’s fantasy.

But officially it is still necessary to show that the PFI is better value for money than funding the hospital from public borrowing where the interest rate is always lower because the loan is underpinned by the State. So how did the fiddling get round this? The trust’s ‘outline business case’ initially showed that even after discounting the future PFI payments by 3.5% – widely perceived as excessive – the PFI deal would cost £407m, far more than public funding at £323m. So the usual ‘risk factors’ were applied to the PFI deal, but it still came out as more expensive. So the board went back to its advisers and after ‘further consideration of various risks’, behold the PFI bid came out at £428m against the public alternative at £428.6m! So that’s all right then.

The fix was to conjure up/invent a much higher value of risk for the public cost to pretend that PFI was better value for money. That meant fabricating extra public sector costs of no less than £105.4m for construction, performance and operational functions compared with just £18.3m for the PFI dea. The trust refused to supply an explanation of how this (big) fiddle was validated, on the grounds that that they were a ‘private board’ despite the fact that they were allocating hundreds of millions of public money.

All this confirms the view reached by the Treasury Select Committee in 2011 that PFI doesn’t give value for money and only gives the pretence of doing so by fiddling the calculations through multiple spurious risk factors till the ‘right’ answer is finally drawn out of the hat. This horror story throws up several conclusions – that Osborne is determined to put his privatisation prejudice ahead of restoring NHS finances, that cooking the books is now so blatant that regulators and politicians should take more powers to block it even before PFI is repealed, and that Labour has still not escaped from the shenanigans of the Blair New Labour era.

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