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Capitalist Cat's Guide to PFIs

A brief introduction to PFI (Private Finance Initiative) contracts.

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Capitalist Cat's Guide to PFIs

  1. 1. ..with the help of some facts from Helen Mercer, The Private Finance Initiative (PFI): How come we’re still paying for this? (The People v. PFI, 2018)
  2. 2. Capitalist Cat likes PFIs. A PFI (Private Finance Initiative) is a contract which uses private finance to refurbish, build and run public infrastructure. PFIs privatise public buildings & services, dividing control between public bodies and private companies. A PFI gives a guaranteed 12-15% average returns on investment compared to 4% on government bonds. The private sector gets the profits, the public sector gets the risk. What’s not to like?
  3. 3. PFIs, SPVs, WTH? • A public body takes out a PFI contract with a consortium of private investor and construction companies. • The consortium sets up an SPV (Special Purpose Vehicle) to run the contract. • The SPV contracts out the work to private firms. And when it comes to running hospitals, schools and prisons, you can rely on the private sector…to put profits first.
  4. 4. • Public infrastructure was paid for by taxation/local rates/borrowing from the government’s Public Works Loan board. • Local government used its own contractors and service providers to carry out the work. • Interest payments on PWLB loans went back into the public purse. NowBack in the day • PFIs use loans from private investors to build public infrastructure, then lease it back to public bodies and charge them to run it. • Building and service contracts go to (usually non- local) companies which can do it at minimal cost. • Interest payments go to the private sector. You say, “undemocratic,” I say “global investment opportunity for finance capital.”
  5. 5. • Financing infrastructure with PFIs has cost at least twice what it would if the government had done it by borrowing the money. • “In the case of hospitals, research has shown that one hospital is built for the price of two.” • “There are persistent reports of poor services and overcharging for services outside the original contract. At a school in Bristol a single blind for a room will end up costing £8,154 under PFI.” (Helen Mercer) I said the private sector could do things more cheaply and efficiently. I didn’t say for whom. “PFIs are quite simply the worst mortgages in the world.” (Frances O’Grady)
  6. 6. It’s hard for taxpayers to know if a PFI is good value, ethical or green • Contract info is often kept secret due to ‘commercial confidentiality.’ • Contracts are self-monitoring. PFI companies are supposed to report their own deficiencies and be fined for them. “If they tell the whole truth it’s going to cost them a lot of money.” (Anonymous whistleblower) Of course they’re good value… they make millions for private investors!
  7. 7. What the critics say: • PFI debt forces schools and hospitals to cut staffing levels and services. • Jerry-built PFI housing is a death trap: 80% of Leeds’ Swarcliffe Estate was found to be at risk of gas explosions. • PFI prisons sacrifice the welfare of staff and prisoners to profit. What Capitalist Cat hears: PFI bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla bla profit.
  8. 8. “Taking out a PFI for 25 years is like taking out a loan with Tony Soprano”. Sheffield tree campaigner • PFIs are long-term (20-60 years). • It’s very expensive to make changes to a PFI. In 2006, the Ministry of Justice had to pay c.£54 million to contractors to update its PFI contracts. • Terminating a PFI contract can cost a public body millions. What’s the difference between a PFI prison and a PFI contract? You can’t escape from a PFI contract.
  9. 9. Tax evasion is “intrinsic to the PFI model based around the Special Purpose Vehicle.” (Helen Mercer) Many of the private companies investing in PFIs are registered in off-shore tax havens to avoid paying tax on their profits… …at a cost of millions to the public purse. Good thing too. Stops it being wasted on frivolities like the NHS, policing and education. And the cream that gets the cat… Powerpoint by Isobel Baxter, 2019