Nigel Farage’s supporters often say that at least UKIP is forcing the main political parties onto the ‘immigration agenda’, despite the main parties not wishing to discuss immigration.
Critics have argued that UKIP have discussed moving the NHS towards a private insurance system, whereas Nigel Farage, leader of UKIP, on Question Time, argued that the matter had indeed been discussed but later rejected by their party.
It is reported that the Labour Party wishes to make the NHS its ‘number 1 electoral priority’, and that Lynton Crosby, the current strategist and tactician for the Conservative Party, is desperate not to make it so.
Labour themselves have criticised heavily how PFI represented poor value for the NHS, while most people generally concede that the NHS has suffered from lack of capital for its various necessary infrastructure projects.
“Take the PFI contracts – the private finance initiatives”, Farage mentioned on Question Time in a lengthy answer on the NHS.
Through PFI, large debts have been stored up for future taxpayers – at some stage need to be repaid. PFI debts do not form part of the deficit balance sheet.
“New hospitals were built, but rather than going to borrow money rather than going to the gilts market in that horrible City place, where they’re all crooks, Labour went to really rich people in private equity – and we borrowed £50 billion sterling to build new hospitals, which we built, but the repayments are £300 billion sterling.”
PFI deals were invented in 1992 by the Conservative government led by Sir John Major, but became widespread under Labour after 1997.
The schemes usually involved large scale buildings such as new schools and hospitals, or infrastructure projects which would previously have been publicly funded by the Treasury.
The projects are put out to tender with bids invited from building firms and developers who put in the investment, build new schools, hospitals or other schemes and then lease them back.
Love them or loathe them, the people in the City understand finance.
I suspect Nigel Farage does too.
Debt finance is a loan – an “IOU” – where you pay back the money, together with debt interest payments.
Equity finance is the bread-and-butter of the City and its lawyers.
For a pot of money, you buy a stake in a project which you can later sell at a profit. The critical thing about equity finance, which is why some people don’t like it, is that this stake buys you a slice in the management and control of projects.
Equity financiers, by buying stakes in PFI, exert from a distance a lot of control on our current NHS. This is a subject that no mainstream politician wishes to talk about; except…. bless him… Nigel Farage.
Nigel Farage may have become public enemy number 1 over their previous commments suggestive of privatising the NHS, but it is still not out of the question that Nigel Farage or Alex Salmond become Deputy Prime Minister in a formal coalition or a supply-and-confidence government led by Labour following May 8th 2015.
According to a Guardian analysis of contracts that were sanctioned by the Treasury dating from 2012, the cost of Britain’s controversial private finance initiative will continue to soar for another five years and end up costing taxpayers more than £300bn.
Andy Burnham MP continues to argue that Labour will return to the NHS to ‘people before profit’.
But Burnham has previously admitted PFI is problematic.
And all the mood music sounds as if Burnham is ‘seeing red over PFI’. Literally.
“We made mistakes. I’m not defending every pen-stroke of the PFI contracts we signed.”
Due to the costs of PFI, many NHS hospitals have found themselves struggling to pay for safe staffing in their budgets. It was recently reported that half of NHS workers would not receive a 1% pay rise.
Despite recent coalition criticism suggesting that the government was going cold on the scheme, published figures from the current Government have indicated that repayments will continue ballooning until they peak at £10.1bn a year by 2017-18.
According to the Guardian newspaper from 2012, the 717 PFI contracts currently under way across the UK are funding new schools, hospitals and other public facilities with a total capital value of £54.7bn, but the overall ultimate cost will reach £301bn by the time they have been paid off over the coming decades.
Equity investors have helped to deliver many public sector infrastructure projects via the Private Finance Initiative and have managed them in ways from which the public sector can learn.
Against a background of limited information, evidence gathered by the National Audit Office raises concern that the public sector is paying more than it should for equity investment. This report was published in February 2012.
The report still makes for interesting reading.
“Banks or bondholders provide around 90 per cent of the project funding for a PFI project on the condition that the remaining money is provided by the investors as risk capital or equity, which will be lost first if the project runs into difficulty.”
“Investors are rewarded for taking risks. The risks the investors bear are mainly the costs of bidding; that their contractors may fail to perform; or that other project costs the investors bear the risk for will be higher than envisaged. However, the investors limit their risk by passing it to their contractors. In addition, the government is a very safe credit risk and many projects such as hospitals and schools are repeat projects.”
“The Treasury and departments to date have relied on competition to secure efficient pricing of the contract but have not gathered systematic information to prove the pricing of equity is optimal. The NAO report identifies three potential inefficiencies in the pricing of equity. These are the time and costs of bidding; minimum rates set by investors, which sometimes do not reflect the actual risks the project will face; and bank requirements.”
The NAO report argued that, generally, public sector authorities have not been equipped with the skills and information required to challenge investors’ proposed returns rigorously. The NAO shows how further analysis during the bidding process would help authorities to assess the reasonableness of the investor returns. As an illustration, the NAO estimates that around 1.5 per cent to 2.2 per cent of the annual service payments in three projects it analysed were difficult to explain in terms of the main risks investors said they were bearing.
“Some investors in successful projects have gone on to sell shares in their equity to release capital and fund new projects. This has also resulted in accelerating the receipt of their returns. Analysis by the NAO has shown that investors selling shares early have typically earned annual returns of between 15 per cent and 30 per cent. The NAO recommends that the Treasury should use its current review of PFI to consider alternative investment models that limit the potential for very high investor returns in relation to risk.”
A future Labour Government will have to confront PFI, as it is an integral component of why the NHS is facing difficulties. A future Government could have the power to cancel or substantially renegotiate PFI projects where it could be proved that taxpayers were not receiving value for money.
It is also critical that the Government has the critical skills and expertise to use its huge buying power to obtain better deals, if it remains keen to pursue this policy route. It is already hardly coping with the deluge of contracts being put out to tender under section 75 Health and Social Care Act (2012), but Labour plans to repeal that Act in its first Queen’s Speech of the next parliament.
Unfortunately, total repeal of the Health and Social Care Act (2012) will have absolutely no effect on the operational or strategic management of PFI in the NHS.
Margaret Hodge has thankfully spoken out very vociferously about the problems with PFI under successive Governments.
“A rotten deal”
I agree with Margaret (full account here).
Andy needs to keep up the pressure on this.
