Fraser Nelson
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Add up all the money pledged through PFI, and the independent Institute for Fiscal Studies believes that you will quickly reach the sum of £110 billion. The institute’s findings suggest that, were this PFI lump-sum added to officially acknowledged government debt, the total figure would represent 45 per cent of gross domestic product — making a mockery of Mr Brown’s ‘sustainable investment’ rule, by which government debt is not meant to exceed 40 per cent of GDP. If this seems no more than a statistical abstraction, think of it this way: the overall national debt works out as £26,100 for every British household. This amounts to a second mortgage which all of us, including our children, must eventually pay off. And this is before the consequences of the Northern Rock crash or the £1 trillion of unfunded public sector pension liabilities are factored in.
Since the Tories went into opposition, Lord Lamont has been raising the alarm about the abuse of PFI, having grasped, long before his colleagues in the Commons, what was happening. ‘I’m afraid I am responsible for creating it,’ he says now. ‘But it was only for ventures like new bridges or toll roads, never for ordinary public spending. There were strict rules about that, but they changed them. It’s used now to buy kidney machines and procure defence equipment. I think it’s quite a scandal.’
The European Commission seems to agree, although doubtless in blander language. For some time now, it has been pressing the Treasury to conform to different accounting standards and appears to have won a long battle. The new rules will be adopted next April. This debate has attracted little attention, as one might expect with something that involves mind-numbing acronyms like IFRIC12 and ESA95. But in politics, complexity — not patriotism — is the last refuge of the scoundrel. Where money is most plentiful and scrutiny slightest, there is much potential for mischief.
An analysis by The Spectator of the 628 major PFI deals shows that in the first five years of the scheme, under the Tories, just £2.2 billion was spent — and on less-than-glamorous projects, such as non-combat vehicles for the Royal Air Force, or on basic infrastructure, such as the driverless Docklands Light Railway in London. In the next five years, under New Labour, this figure shot up by £12 billion (to £14.2 billion overall) — just as Mr Robinson had predicted over dinner. But it is unlikely that even the future Paymaster General would have foreseen what has, in fact, happened: Mr Brown hit an economic slowdown, refused to tighten his belt and relied on PFI like never before.
Cancer care in Belfast, ambulances in Dorset, courtrooms in Somerset, a special needs school in Kirklees — suddenly all manner of core public services were being signed off under PFI. In the last five years, not £2 billion, not £12 billion but a full £35 billion has been spent under the scheme. Add in the future charges which the taxpayer has already been signed up to meet, and the figure soars to £110 billion. To put this in perspective: Mr Brown has been signing off more money through PFI deals in a month than the Conservatives did in a year. And this from a man who, in opposition, voiced outrage at this mechanism as ‘a cynical distortion of public finance’.
Mr Brown is also ready for the new accounting rules being imposed from next April at the behest of the European Commission. As things stand, they create certain problems for the government: the Department of Health, for example, would almost certainly be exposed as being in deficit were all of its liabilities properly accounted for. But a rather extraordinary plan has been hatched. According to KMPG, the accountancy firm, NHS trusts are now investigating ways of concealing their debt by setting up charities which would ‘own’ the PFI contract. The NHS would hide debt from the taxpayer in precisely the same way as Enron once did its liabilities from its shareholders.
Yet change is afoot. In Govan, the area of Glasgow where Mr Brown was born
, the local hospital is being rebuilt — but rather than signing another PFI deal, the Scottish Nationalist administration is carrying out the project transparently on the books, at a cost of £550 million. This undertaking has been billed as a turning away not only from accountancy fiddles designed to deceive the public, but also from what the SNP refers to as ‘the wasteful PFI which has seen private companies making huge and unwarranted profits from our public services’.
Mr Brown has taken fire from the trades unions for the last decade on this point, and often cites his support for PFI to underline his New Labour credentials. But in his motherland he stands accused of selling out the taxpayer and allowing private profiteering — all because he was bedazzled by the prospect of keeping debt off the books. The SNP has even made available the details of the more loosely drafted PFI contracts, which (according to some SNP-friendly economists) show that projects like Edinburgh Infirmary and James Watt College could all have been built for half the cost had the government borrowed the money in the traditional manner.
This touchingly assumes, of course, that the bureaucrats who laid on the pantomime of the Scottish Parliament building project (whose budget exploded from £40 million to £430 million) would have handled the projects better. PFI contracts do tend to come in on time and on budget. The National Audit Office scrutinises each PFI deal and, so far, almost all have been approved without criticism in terms of value to the taxpayer. But the devil often lies in subsequent changes to these 30-year deals, which tend to prove the oldest maxim in the construction world — that government is the most gullible paymaster on earth.
The credit crunch has slowly started to choke PFI deals, as the private companies involved find it more difficult and expensive to raise money. The more spent on repaying debt, the less there remains for building and running the projects. In effect, this means that there are fewer resources for the projects, once completed. According to the Commons Public Accounts Committee, a third of contract managers at PFI hospitals now describe their teams as under-resourced, while funding difficulties have also slowed, or killed off, other deals. A £1 billion NHS scheme in Merseyside has been halved in value. Projects for Leeds maternity services and Southall hospital have been abandoned. Suddenly, PFI itself looks like it may be on the critical list.
But the debt lives on. Debt is a boring issue in boom years, but has a habit of blazing its way into the public consciousness during recessions. In the US presidential election it is firmly on the agenda — an issue powerfully expressed at the Democrats’ National Convention by Susan Eisenhower, great-granddaughter of the late president. ‘We have knowingly saddled our children and grandchildren with a staggering debt,’ she told the thousands waiting for Barack Obama. ‘This is a not just a financial failing, but a moral one.’ And the Americans have strict rules prohibiting government from concealing debt from taxpayers.
To renew credibility in our fiscal system, a Conservative government would have to adopt the same approach as Ms Eisenhower. George Osborne is talking about ‘sound money’ and his options narrow as each month passes. There is much discussion in Cameroon circles of a forensic, searching ‘discovery’ exercise, similar to that which Boris Johnson has enacted at City Hall. While this will help make an important post-election point — the malfeasance of the Labour years — it carries an obvious risk. Should Mr Osborne pull all the pieces together and take all PFI on to the books, the new Tory government will have to disclose to the public a debt burden higher than seen by any administration since Britain had to be rescued by the International Monetary Fund in the 1970s. Confronting such debt will deny him any room for manoeuvre.
It is just the bad luck of some chancellors to inherit a mess, and to spend their time fixing it rather than implementing their own policy agenda. When Jim Callaghan entered the Treasury in 1964 he passed the outgoing Reggie Maudling, who had clocked up £800 million of government debt. ‘Sorry to leave such a mess, old cock,’ Maudling said. There is little prospect of such an apology from Mr Brown. His leaving present is unwittingly depicted in a photograph which today hangs in the foyer of the Treasury. It shows the building during its PFI renovation — stunning on the outside yet with its insides a shambles. What better symbol of Mr Brown’s ruinous legacy?
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