Editorial: Privatisation No Better

The recent collapse of the construction company, Carillion, has put the government’s Private Finance Initiative (PFI) policy under the spotlight. Under this policy, private companies are contracted to finance and manage public sector projects, such as building and maintaining schools and hospitals. On completion, the building or service is leased back to the government, which then must make an annual payment for a period of 25 or more years. The main advantage for the government is that much of the costs can be kept off the government balance sheets.

PFI was first introduced by the Conservative government in 1992 following a deep recession when public sector finances were tight. The Labour government of 1997-2010 extended greatly the use of PFI, particularly in the NHS, hailing it as a means of harnessing private capital for social ends. The Coalition government of 2010-2015 continued with PFI and rebranded it as Private Finance 2 (PF2), which was supposed to provide greater transparency and accountability.

However, private contractors normally borrow money at a higher interest rate than the government and in many contracts, private companies have been able to milk as much as they can from the deal. Thus, in many cases, the total costs have been considerably higher than if the government had undertaken the work itself. PFI repayments have placed a heavy burden on many NHS trusts, reducing their ability to hire doctors and nurses and provide medical care. Also, in bidding for PFI contracts, investors have had to reduce their costs which exert downward pressure on workers’ pay.

An argument for PFI was that the risk lay with the private contractors, when in fact it has been the government that has had to bail out the projects when either the firm goes bust or, as was the case during the financial crisis of 2008-2009, the banks would sometimes refuse to lend the money.

As to be expected, PFI has its critics. MPs have complained of the extra costs to the taxpayer. John McDonnell, the Shadow Chancellor, has pledged that not only would a future Labour government end the use of PFI deals but would also bring existing PFI contracts ‘back in-house’. The Royal Bank of Scotland chairman, Howard Davies, when appearing on BBC Question Time, has called it a ‘fraud on the people’.

Few things better illustrate how capitalism treats everything, including healthcare and education, as commodities to be bought and sold for a profit than PFI. However nauseating it is to witness private companies making millions out of essential social services, ending PFI and returning to the old system of government procurement would not resolve the problems of meeting working people’s needs. Before PFI, the provision of public services were still circumscribed by what the market system could afford. As for the costs to the taxpayers, it has to be borne in mind that although workers do pay taxes, the burden of financing the state ultimately falls on the capitalist class. The real fraud that is enacted on working class people is the capitalist system itself which appropriates their unpaid labour to enrichen the capitalist minority.