Great post, and agree that the BBC’s recent reporting on this really did overlook a lot of the important numbers, however, I don’t think that understanding PFI as a negative development erodes public confidence in the NHS as much as it erodes public perception of Labour’s time in government.

I’m pleased to see an article pointing out the weakness in figures criticising PFI, if only because I assume if PFI were a bad deal for the tax payer there might be some good figures proving that by now.

Instead it is probably a deal for the taxpayer, marginally better or worse than the alternatives depending on the project and how well it was negotiated and the financial situations at the time.

A PFI contract is an asset and will always be more expensive than the equivalent government bond rate because it is an illiquid asset that can’t be easily monetised. A government bond is a perfect substitution for cash so it is highly liquid. There is the argument that PFI is forcing the risk onto the private sector. However, I can’t see how PFI financing can be anything other than more expensive than the government just borrowing from the gilts market. There is the maintenance and management of buildings component to the contract. However, they could have borrowed to build the buildings and contracted the maintenance as a separate contract.

We are in a phase of low interest rates for years ahead and the environment is quite different to the one when contracts were signed. There is a case for renegotiating contacts and the government could nudge things towards renegotiating. Here is a Tory MP arguing the same thing.

Hard times call for a new rebate on PFI deals

By Jesse Norman

Published: August 16 2010 23:13 | Last updated: August 16 2010 23:13

The public sector is facing falling headcount, businesses are struggling with the legacy of high taxation and slow growth and voluntary organisations are bracing themselves for cuts. In this time of fiscal retrenchment, all parts of government must do their bit. But the private finance initiative, in particular, offers potentially huge savings.

Before the election, the Conservatives were highly critical of the PFI. But, as yet, little has been said by the coalition about its future. Legally, it sits in public-private limbo. It is not part of the public sector, since its consortia are made up of private contractors. But nor is it entirely private sector, as these same consortia manage hundreds of public projects, from roads to schools and hospitals.

These projects are paid for by the exchequer on 25- or 30-year contracts, with contractors typically aiming at 8-10 per cent annual returns. Not a windfall; but a healthy taxpayer-guaranteed return, especially in a recession. Given this, I have launched a campaign for contractors to contribute a “rebate” to the public purse, by reducing the interest payments they receive from public institutions.

Some £210bn of PFI capital assets remain outstanding. A McKinsey study last year suggested that a reduction in interest charges paid to contractors by NHS hospitals of just 0.02 or 0.03 per cent could save £200m. (The NHS constitutes about one-third of the PFI debt.) Taken across all existing contracts even this modest rebate could save £500m-£1bn.

It is important to note that these savings would not go to the Treasury, but would instead be remitted back to each hospital or school. They would provide a pound-for-pound impact on the funding of each institution, from the bottom-up, meaning a lot more medicine, surgery and school books. Indeed the savings would be especially important since many PFI institutions – such as hospitals which have contracted out almost all of their non-clinical costs – will find it much harder to manage their costs down than will non-PFI ones.

There is an obvious objection: these are private companies with commercial contracts signed with willing counterparties. So it should be no part of government policy to set aside, tear up or rework these contracts.

True enough. But mere encouragement from government might be enough to do the job, for the government has many points of contact with the different PFI consortia. For example, one of the largest contractors, Semperian, has stakes in 106 separate PFI or public-private partnership projects. These multiple points of contact give the government a much louder voice, while an individual hospital or school is likely to be ignored.

Just as importantly, many investors in these companies are themselves public authorities. The largest investor in Semperian, for example, is Transport for London. TFL and other public bodies may find it convenient to push fairer treatment for transport, health or education projects, rather than allowing contractors to make huge sums at a time of austerity.

So the government does not lack the influence to encourage PFI providers to rebate a portion of their revenue. And the idea that our public services are getting a bad deal here is gaining momentum, with the chief economist of the King’s Fund health think-tank recently calling for the NHS to renegotiate its PFI commitments. Indeed, there is a direct precedent for exactly this sort of rebate in the so-called “voluntary code”. The code was agreed in 2002 after several PFI providers made huge windfalls refinancing deals. Under it, 30 per cent of gains from existing projects were returned to the taxpayer. The ratio is 50 per cent for new deals.

There are also other hidden opportunities in this area. Use of space in many PFI hospitals remains below international standards. In the long term there is scope to re-open current PFI deals, to relax some restrictions and make more economic use of hospitals’ non-clinical space and land holdings, and then to remit more value to the public purse. The contractors will get what they are owed, but the taxpayer could benefit, too.

All that is still in the future. But what we need now is a new voluntary code promising a modest across-the-board rebate. PFI consortia have played their part in rebuilding Britain’s infrastructure. But they must play their part in rebuilding the nation’s finances too.

Hmmm. It’s interesting to see that PFI is not quite as bad as it seen at face value.

A district general hospital local to me went into debt a few years back and to tide it over while it restructured it took out a loan from the Department of Health at a rate of (wait for it) 5.35%. Not far off the 6% quoted by AFZ for PFI.

Since Commissar Lansley has said that in future no Foundation Trust can get a loan from the DoH for capital projects and since his despicable white paper says that there will be “no bail outs” for any NHS trust (FT or not) then that means the only route would be commercial loans. What are the current rates for commercial loans, I am guessing that they are considerably higher than for government bonds and equivalent to the 6% for PFI.

The “standard” critique of PFI is Paul Foot’s supplement to Private Eye from several years ago. Alas, it is not available online.

In any public-private contract, a price is agreed for a defined service or product. For a 25 year contract like PFI, I assume that the bidder has negotiated some wiggle room so that changing requirements can be agreed within the agreed service. But eventually, a requirement will arise that is outside the contract. Which is when PFI suddenly becomes very expensive.

If a hospital manages its own estates and catering services, the cost of change is how much is spent to implement the change. If services are contracted out, the cost is the maximum that the provider can get away with.

alien from zog,

Let us have a proper debate about the role of the private sector in capital projects, but for me, I am just glad that the much needed capital investment in the NHS has happened.

Thanks for an interesting OP.

If I recall correctly the issue with PFI was not just whether it was value for money but also about the schemes that were off-balance sheet, of which there was a significant proportion across the board (I don’t know about the NHS specifically). IIRC this was fine according to the rules at the time – rules changed since April ’09 – but of course it led to concern that the true extent of taxpayer liability was somewhat obscured.

“I am just glad that the much needed capital investment in the NHS has happened”.

I doubt if Sam Semoff, from campaign group Keep Our NHS Public, would agree with you – he has launched legal proceedings at the High Court to block the £451m PFI plan to rebuild the Royal Liverpool Hospital.
Apparently it is the second time he has taken action because he believes the PFI “will leave the region in crippling debt”.
http://www.liverpooldailypost.co.uk/liverpool-news/regional-news/2010/08/11/royal-liverpool-hospital-rebuild-plans-face-second-judicial-review-threat-from-campaigner-sam-semoff-92534-27038866/

This week the Gruniard is also on the anti-PFI bandwagon;
http://www.guardian.co.uk/commentisfree/2010/aug/16/editorial-pfi-economic-policy

The bete noir of PFI initiatives in the NHS, Allyson Pollock, lays out her objections here;
http://www.guardian.co.uk/commentisfree/2009/sep/23/pfi-construction-bid-rigging

IF there is good evidence that PFIs benefit NHS patients then we should certainly hear what that evidence is, but incurring greater expense, even if the increase is relatively modest compared to traditional model’s of funding is hardly an auspicious start?

Unspoken thus far is that PFI projects have a finite life span. The contract is for N years, after which government management has to start again. Or renegotiate the contract.

If a PFI lasting 25 years was signed off in 1998, it lapses in 2023. So the current coalition is not going to be worried. But I am worried because 2023 onwards is when I expect to retire. And government at that time will be absorbed with sorting out the PFI mess rather than looking after me. (My expectation is that government looks after me by defending me from malign corporates rather than smothering me with unnecessary statism.)

“PFI not quite as bad as BBC makes it out to be.”
Read ‘NHS plc’ to see how allround bad it is; http://www.opendemocracy.net/ourkingdom/2008/02/08/nhs-plc-by-allyson-pollock
Also, see http://www.guardian.co.uk/society/2009/jun/01/nhs-health for a local example to me, a ‘flagship’ PFI project that proved quite fantastically egregious.

UKLiberty

The “off balance sheet” concern has always been overplayed and isn’t really true. Much of the cost people claim is off balance sheet is in fact cost not yet incurred. So It is cost that will come up (for example) in return for maintenance work done in 15 years time. Saying that is off balance sheet debt is a bit like saying that Manchester City have £40million of debt “off balance sheet” because they have a contract with yaya toure saying they will pay him that over the next four years. Which is clearly ridiculous.

The only criticism that stands up in regard to PFI isn’t about money at all. It is about transparency. Private companies, especially in the early days, put in place some very onorous conditions about what constituted sensitive corporate information. That meant that although the body they signed the deal with could see the detail, the public couldn’t. That’s not the worst thing in the world when it is specific details about how a contract is structured and so on. It is however deeply undemocratic when it includes detail on the nature of the maintenance service being provided at taxpayer expense.

Margin4error,

I was thinking more about “what happens if the company goes under?” scenario.

I’m probably using the wrong terminology because of a lack of competence.

ukliberty

To be fair, if the company goes under we (the taxpayer) win.

If the cost of building something (a hopsital or school) was built into the maintenance costs over 30 years – the firm going bust would put the public body in a strong position to renegotiate a new maintenance contract without the inbuilt cost of the original construction work.

However there is a question as to whether the price was too high – essentially are private companies profiting at the tax-payers expense?

If they’re not, then what the hell are they in business for? The good of their health? Surely profiting at the tax-payers expense is the whole point (from their point of view)? They have a fiduciary duty to profit at the taxpayers expense.

Then, there is also the complaint that PFI contracts frequently seem to go for the most expensive option available (eg building a new hospital on a greenfield site rather than refurbishing existing buildings) because the cheaper option doesn’t provide sufficient opportunity for profit. A naive assessment as to whether the asset in question presents “value for money” completely misses this question.

[13] indeed Dunc – PFI was an idea kicked around by John Major in the early 90s, before being enthusiastically embraced in ’97 by our new social mobility Tzar, but then health secretary, Alan “family man” Milburn.

Concerns about PFI extend far beyond relative cost, although I have not heard anybody claim that such a mechanism ever delivers cheaper services?

A few further questions to mull over.
First of all actual ownership of a PFI hospital remains with the consortium (and not the public) at the end of a 30 year lease – in other words, are PFIs a further example of recent government’s privatisation by stealth agenda?

Meanwhile some have expressed concern about the “straight-jacket” of provision, the day-to-day control that consortiums build in to their contracts.
According to Dr Paul Flynn, Deputy Chairman of the BMA’s Consultants Committee, “Hospital specification has been what the PFI consortium has been prepared to pay for.” This means fewer beds, for example, than the trust might prefer – which could lead to winter shortages. “Health care should be driven by clinical need, not consortium considerations,”.
Doctors have told the BMA that because the consortium also runs the building, it can be incredibly difficult to get anything done; one noted it took weeks to get a notice-board hung, another said that reconfiguring a colonoscopy clinic to meet patients’ needs took years”.
http://www.telegraph.co.uk/health/7407484/The-pros-and-cons-of-PFI-hospitals.html

So, it would appear PFIs costs more; present clinical problems (because day to day operational issues may be hampered by 30 year contracts) and the public don’t even get to own the infrastructure at the end of the lease – what is there not to like, eh?

First of all actual ownership of a PFI hospital remains with the consortium (and not the public) at the end of a 30 year lease – in other words, are PFIs a further example of recent government’s privatisation by stealth agenda?

Generally, no. In the specific example I’m most familiar with, which I believe is the norm, the PFI SPV acquired a 60 year lease from the NHS Trust over the site. It then sub-leased the hospital back to the NHS Trust for 60 years less one day.

@14

PFI was an idea kicked around by John Major in the early 90s

Yep… and, um, Mussolini in the 1920s.

Of course in Wales we don’t use PFI to build hospitals…thank gawd.

Marcus

Without wanting to defend PFIs other than by way of pointing out how fatuous some of the arguments against them are*, I can’t hlep but note that NHS waits in Wales have generally remained longer than in England, and education standards remained lower.

Wales might not be a model to copy.

*Basically the secrecy aspect and what some one called a straight-jacket of provision are reasons enough to be concerned about PFI – Without making up nonsense cost arguments and scaremongering that it means privatising hospitals.

Dunc (13) : Very good point.

The article is also considering only the cost of the loan repayments to purchase the new hospitals – the NHS is full of stories of PFI companies making unreasonable surcharges, presumably not included in the $65bn – for trivial activities “outside the contract” such as putting up pictures… after all when you have a monopoly you can name your price.

It also doesn’t consider the huge administrative costs incurred in negotiating, re-negotiating and monitoring these contracts – consultants, lawyers etc. Fundamentally the profit incentive for a PFI contractor is in the direction of an legal arms race with the commissioning body, with the aim of reducing their obligations without reducing their fees…

OK, it looks like you’ve simply taken 30y Gilt yields at 4.1% and compounded for 30 years (rather than the 38 years to the end of the contracts).

There are a couple of immediate problems with this;

Gilt yields are near historic lows. The chance of the yields staying so low is minimal. You are better off using somewhere near the moving average, 4.5%, and that itself is onyl so low because Gordon Brown forced UK pension funds to hold a % of their assets in long dated Gilts…

The PFI deals have been in place for some time – some of the 65bn cost has already been sunk.

As such, the calcuation looks like it will see future costs will be about 54bn, not accounting fo rmonies already paid.

Also worth noting that after the leases expire the private companies will still own the hospital buildings etc (though by that ponit they will probably be worth little in terms of the structures themselves).

[18] “and scaremongering that it means privatising hospitals” – oh, a lot of people are worried about covert privatisation (of which PFI is just one plank).

This commentator suggests, “what is required, even at this late stage, is to abolish the purchase-provider split and reintegrate health services. This will save on transaction costs, marketing, billing and invoicing but it will also ensure patients are not treated as commodities, forced to shop around for care”.
http://www.guardian.co.uk/society/2008/jun/30/nhs60.nhs

Now some might regard such a view as little more than the ramblings of a deranged conspiracy nu,t but personally I share many of his concerns – I don’t want to see the NHS do a ‘dentist’ at least until there is some sort of consensus that this is the best way to move our health services forward.
http://www.wsws.org/articles/2008/feb2008/dent-f25.shtml

margin4error

The “off balance sheet” concern has always been overplayed and isn’t really true. Much of the cost people claim is off balance sheet is in fact cost not yet incurred. So It is cost that will come up (for example) in return for maintenance work done in 15 years time. Saying that is off balance sheet debt is a bit like saying that Manchester City have £40million of debt “off balance sheet” because they have a contract with yaya toure saying they will pay him that over the next four years. Which is clearly ridiculous.

This is true as far as the maintenance element of the contract is concerned, but the borrowing to fund the capital costs of the project certainly is “off balance sheet”. Of course it is difficult to separate the two when analysing the costs, which it is why it is (deliberately?) hard to make a definitive comparison between PFI and traditionally funded projects.
PFI certainly starts at a disadvantage because apart from the additional borrowing costs there are the substantial fees paid to lawyers, bankers and accountants for putting the bid and the contracts together. Plus of course the profit made by the consortiums. There would have to be some pretty incredible efficiency savings in order to overcome those extra costs.

Oops, slight problem with the blockquote there. The last paragraph is mine.

andrew

It is hard – but no one bothers to try. They just make up numbers and pretend that’s the same thing. Also – you need to pay lawyers and accountants and so one whether you build a building through PFI or or by contracting builders or by running a state construction arm. So again, that’s a bit of a non-issue. Likewise with the subseq

I genuinely don’t understand why, given no one has any evidence it costs more, PFI is attacked for costing more when there are other perfectly good causes to criticise it. (As said above)

The bit missng there was

subsequent maintenance activity – which would still make a company profit or involve direct employment by the state which obviously costs in HR terms and legal terms and management terms too.

@21

People areworried about privatisation by the back door. but PFI does not result in the capital being owned by the private sector. So it just isn’t an example of it. Indeed without setting up a state construction body with thousands of builders on the payroll (We’ve never done that before) PFI is just another method of contracting for construction.

The maintenance side is different. We have had state maintenance and cleaning and so on in the past. But again, PFI is just a financing mechanism for private involvement in those things. Arguing against PFI is not the same as arguing for bringing those activities back in house, since they have been privatised in other ways too.

10. Margin4eror

‘ The “off balance sheet” concern has always been overplayed and isn’t really true. Much of the cost people claim is off balance sheet is in fact cost not yet incurred. So It is cost that will come up (for example) in return for maintenance work done in 15 years time. Saying that is off balance sheet debt is a bit like saying that Manchester City have £40million of debt “off balance sheet” because they have a contract with yaya toure saying they will pay him that over the next four years. Which is clearly ridiculous. ‘

That is not actually accurate, Margin4error. If the public sector are economic owners of the asset the imputed finance lease liability is on the national accounts. I would imagine much of the ONS difficulties in accounting for liabilities in the national accounts is caused by many contracts being contingent liabilities. Moreover, they would want to avoid double counting.
http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/psfnewsrelease_aug06.pdf

My main reason for writing this was frustration at the unhelpful reporting. The BBC story was not illuminating at all.

I have worked in a PFI hospital. Apart from some frustration over silly things that teh private company were very slow with, it worked pretty well. Ultimately it was a fantastically new building providing excellent facilities.

I currently work in an NHS trust that is one of the largest in the country. One of its buildings contains the oldest wards still in use in the UK. That building is over 200 hundred (yes TWO hundred) years old. (I work in the shiny new bit, but I know how awful these wards are).

The current business plan is to run a surplus for 3-4 years in order to finance the new build they need to do. This means that they must squeeze efficiency into everything they do.

By not going down the PFI route, they avoid complex contracts and some of the pitfalls.

However, what it does mean is that currently patients are cared for in appalling facilities and every other aspect of the trust’s work is under pressure in order to generate the needed capital.

So, for me, PFI, with its problems, doesn’t seem like such a bad idea after all.

AFZ

P.S. With reference to the figures used; I worst cased everything. So I made the following assumptions:
The £65bn BBC figure is correct.
For simplicity I put all the figures over 30 years – in reality many run longer.
For government borrowing, I took the lowest interest rate possible – in reality it is likely to be higher over the long term.

The result of all of this is that the gap between PFI costing and government costing is likely to be a lot less than the £33bn calculated. And, of course this isn’t just profit for the private companies, it is payment for contracted services too.

The point being is that the details of the deal are so important and the £65bn headline figure is not remotely meaningful.

And yes, the usual arrangement (and I’m not aware of exceptions) is that the building belongs to the NHS Trust at the end of the PFI agreement.

[28] “I’m not aware of exceptions” – what about this one?
http://www.scotsman.com/scotland/Exclusive-We39ll-pay-12bn-for.6431088.jp?articlepage=2

You might be right about the BEEB but we still have the likes of Dr John Lister who describes PFI initiatives as “evidence free” – he claims, “ALL the evidence is that private companies offer less efficient and more expensive services than direct delivery by the public sector”.

Lister’s comments, and the case against privatisation, of which PFI is a part, is set out here;
[PDF] Public Services NOT Private Profit The Case Against Privatisation
File Format: PDF/Adobe Acrobat – Quick View
Under PFI, private contractors pay for construction costs and lease the finished …. Allyson Pollock, a variety of costs incurred by …
http://www.publicnotprivate.org.uk/index.php?option=com_docman...

[29] oops, 2nd link not working – for those interested copy & paste the main details of the 2nd item into google.

Richard

You are right, and my analogy of Yaya Toure was somewhat simplistic, though I think you are agreeing somewhat that the “off balance sheet” issue is a bit of a misnoma, given that as you say, once the asset is operational and in public hands, the related cost is on balance sheet.

My criticism of the various figures bandied about is that they seem to include future and as yet unincurred costs for maintenance and running costs – which not only would exist somewhat under any mechanism for building infrastructure, but which is also simply not debt but a contractual agreement akin to Toure getting his £10million a year in return for playing football.

@29

Your first link seems to relate to the early days of PFI when the Tories used it as a mechanism of funelling lots of taxpayer money to their friends through what turned out to be horrendously bad contracts.

Had they continued in the form they took then, I’m pretty sure no one would be defending them right now. In fact they wouldn’t exist any more.

Also – well played for making the criticism that actually matters. Not cost. Not private ownership of the capital. Just that the private run services are often not as good as inhouse services, or at least services managed inhouse even where that involves convential private tendering.

@32 “Private run services are often not as good as inhouse services…”

I agree this is true.

Moreover this is the main point of this article – let’s have an argument about the facts. Let’s talk about what really matters. The £65bn figure is not remotely helpful or truthful. (It’s factual without being truthful).

I haven’t made up my mind on PFI really, but whilst I do agree that sometimes the contracted services are not as good as they might be, I am appalled by the facilities we are still using in some hospitals. Seriously, how are we using still 200 year old wards?

AFZ

[33] an excellent lecture about the relationship between the media and health policy here
http://www.youtube.com/watch?v=c2yOyH9pmJE

Whatever points are made about cost it is far more important to recognise that the emergence of PFIs cannot be considered in some sort of political isolation?

In other words we have to ask ourselves what are the underlying drivers, or motives that see PFI as the preferred model – the short answer in my opinion is the notion that ‘markets’ and ‘competition’ will improve outcomes, and traditionally markets and competition are almost exclusively associated with the private sector.

I just wish Lansley was honest enough to admit that this is the sort of nirvana that the coalition are moving us towards – a task made much easier by the extensive ground work laid by NuLab.

34

actually the most coherent explanation of why PFIs were used so heavilly by Labour was to lock in maintenance long term. They came in in 1997 and found public buildings literally in a state of disrepair. I remember my local school had a roof that leaked when it rained. For over ten years.

So PFI was seen as a way of locking the state into long term maintenance contracts that the tories, upon their return, had to abide by.

Now ethically that’s bad politics. Tying the hands of future elected governments is undemocratic. But lets be clear here, if maintenance was inhouse right now, it would have stopped happening already this year and by the time Labour returned to power schools and hospitals would need rebuilding again.

33

completely agree. The money side is as misnoma, exagerated, and utterly unhelpful unless you just happen to have a zealous contempt for PFI and so want it bashed and abandoned.

[35] “But lets be clear here, if maintenance was inhouse right now, it would have stopped happening already this year and by the time Labour returned to power schools and hospitals would need rebuilding again”.

Early protagonists of PFI presented the model in a similar way – a choice, or rather a dichotomy between opting for the new financial model, or rack and ruin of the health service’s infra-structure.
In my view this is arrant nonsense – indeed, one wonders how ANYTHING was ever built, or maintained before PFI came along to save the day?

Now had there been an honest admission that it was lack of political WILL, rather than inherent benefits associated with PFI, that actually constrained certain policy choices then we might have a bit more respect for our politicians masters – for example, had we not been led into futile conflicts in Iraq and Afghanistan we might have been able to divert £4.5 billion toward more worthwhile projects?
http://www.guardian.co.uk/world/2009/feb/13/afghanistan-iraq-bill-british-military

Lister’s lecture (see link above – start at 13:14) explains how some PFI deals have not only proved more costly, but remain shrouded in SECRECY.
This lack of transparency for what is after all public money should immediately arouse our suspicion?

More expensive, secretive and a further step toward regarding health as just another commodity in the market place – for these reasons I remain deeply skeptical about the introduction of PFI in the NHS.

@37 the a&e charge nurse: “Lister’s lecture (see link above – start at 13:14) explains how some PFI deals have not only proved more costly, but remain shrouded in SECRECY.
This lack of transparency for what is after all public money should immediately arouse our suspicion?”

Wandering off topic, a smidge… In the 1970s and 80s, many opponents of civil nuclear power correctly observed that power stations were shrouded by excessive secrecy supported by an unaccountable police force.

Some former opponents have reconsidered their position. They are prepared to build civil nuclear power stations if they are run openly and genuinely economically.

Is it possible to reinvent PFI in a similar fashion?

@37

No no – you have mixed up two arguments there. The argument that “it’s the only way to pay for it” is not the same as “this will stop the tories cutting maintenance again next time.” (I was pointing out the second of those)

And if you believe that to be arrant nonesense then I suggest you look into the cutbacks on maintenance and construction across the public sector throughout the 80s and 90s.

No idea what that has to do with Afghanistan.

I’ve no problem with people pointing out that the Coalition government have exaggerated the costs of PFIs in order to cover up the effect of their own cuts in annual increases in NHS spending (made necessary by an ageing population and the increasing costs of new methods of treatment being developed constantly).
http://www.guardian.co.uk/global/2011/sep/22/reality-check-nhs-pfi

It’s also fine to point out that PFIs’ annual costs are currently estimated at around 1.36% of the NHS’ annual budget – about £1.5 billion out of £110 billion (though that figure comes from John Appleby, chief economist at the King’s Fund with the 1% coming from – and since PFI notoriously involves fiddling the figures to make the cost appear much lower than it is, i’d like to hear e.g Professor Allyson Pollock’s analysis of the annual costs, in case this figure is lower than the true one).
http://www.guardian.co.uk/politics/2011/sep/22/lansley-hospitals-pfi
http://www.guardian.co.uk/global/2011/sep/22/reality-check-nhs-pfi#B

However claiming PFI is a fair deal or good value for money, or doesn’t lead to cuts in trained staff and beds in the NHS flies in the face of the facts.

PFI is terrible, terrible value for money. There are plenty of figures showing this – from dozens and dozens of peer reviewed analyses by Pollock and many others in the British Medical Journal and other journals covering hundreds of PFIs.
http://allysonpollock.co.uk/index.php?option=com_article&tag=PFI%20/%20PPPs&view=search&Itemid=3

They’ve also shown that hospitals built by PFIs have an average of 30% less beds than publicly funded ones built with the same funding. PFI hospitals are pretty much never additional to existing hospitals but replacements for existing hospitals – and usually for 2 or more of them, with less total beds and trained staff than the total for those they replace.

New PFI hospitals are also replacing existing hospitals every year and the costs of most PFIs also rise each year for at least the first twenty years, so the proportion of the budget taken up by PFIs will not stay constant, but will increase over time. See e.g the graph for the Cumberland Infirmary PFI’s annual costs on this BBC report http://www.bbc.co.uk/news/uk-15016986

For some NHS trusts PFIs already take up 10 to 20% of their turnover.
http://www.bbc.co.uk/news/health-15010279

The Treasury Select Committee recently also found that debts run up under PFI are 70% more expensive to pay off than any other form of debt.
http://www.bbc.co.uk/news/uk-politics-14574059

PFI is easily the worst way to fund any public infrastructure project in terms of value for money, cost to the taxpayer and cuts in services – that’s true whatever party is proposing it.

Calling them a good deal is like calling going to a loan shark or expensive hire purchase a good deal on the grounds that it lets you afford to buy lots of things now that you couldn’t afford till much later otherwise. It’s true in the very short term but hides all the massive costs.

I opposed a lot that Blair and Brown did, but i don’t oppose them where they’re right – they brought in a national minimum wage (even if trade union pressure may have been the key factor there) and they brought relative peace in Northern Ireland by direct negotiations.

PFI is not and was not a good idea though – it’s at best an accounting fiddle and a way of hiding the real costs until the people who began them hope they’ll no longer be government ministers. At worst it’s a con trick subsidising big firms with taxpayers money at the expense of cut jobs and beds.

It’s worth noting that the Conservatives, after panning PFIs started by Labour as bad value for money and scrapping the Building Schools for the Future ones then immediately started their own PFIs – as if any PFI was good value for money.
http://www.guardian.co.uk/education/2011/jul/19/300-schools-built-private-finance-scheme

At least the SNP have the excuse that until the referendum on Independence or increased powers for the Scottish Parliament and government they have no choice but to use NPDs as a variant of PFIs for public infrastructure projects or else put them all on hold till after it. That’s because the devolution settlement does not give the Scottish government the power to issue bonds or take on private sector loans and the British government can cap it’s spending.

Westminster governments – Labour, Conservative or Conservative and Lib Dem have never had that excuse because they do have the power to use other funding methods – and could grant them to the Scottish government to (they’ve refused requests to include the powers to issue bonds or take on loans in the Scotland Bill) http://www.bbc.co.uk/news/uk-scotland-12726425

We badly needed new hospitals. We badly need new schools. We don’t need to use PFI to fund building either of them – and we’d be far better off using other funding mechanisms – even government borrowing the money itself is far cheaper.