Wednesday, 9 March 2011

Credit card Government - we are now seeing the bill

The previous UK government made great use of a form of credit card spending called Private Finance Initiatives (PFI) to build hospitals and schools. The loved this method because it "hides" the actual committed expenditure from the normal measures of government debt/expenditure.  The idea is to get private investment in return for agreeing to lease back the building/facility for a long time from the private company. These deals can last forty or fifty years. A good idea except that the actual long term costs are enormous. 

Now the National Health Service is  reaping the wind as a consequence. A BBC report gives just one example of this in a Hampshire hospital. The hospital was rebuilt using PFI. Now the local Health Trust cannot afford the charges from the PFI private company and wards are being closed. This happening throughout the country. Front-line clinical staff, nurses and doctors are losing their jobs as a consequence.

When the PFI contracts are set up the private companies borrow the money to finance the project (it doesn't appear on the government books). The cost of the loan is then charged back to the local Health Trust, plus any administration costs involved in providing the service. Unfortunately the contracts normally give the PFI company exclusive rights to provide the accommodation services for the long duration of the PFI contract. There are literally no limits to the charges levied.  It gives rise to light bulbs that cost £85 when replaced by the PFI contractor. The private companies (and Banks) make an absolute killing on this racket. 

One other trick is the PFI companies refinance the original loan at a lower interest rate than the original loan. They then pocket the difference in interest rate payments with no sharing with the NHS or tax payers.

We have burdened the next generation with enormous costs because the previous government was not honest about its true expenditure requirement. It would have been far cheaper if the government had borrowed the money themselves. The politicians who allowed this to happen despite warnings will retire on fat pensions funded by the tax payer. Their will be no penalty for their financial negligence. 

Alaric

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