The government has launched an inquiry into how to achieve savings in the charges made for Private Finance Initiative contracts. According to the Treasury’s press notice on the subject: ‘The contract for the Queen’s Hospital in Romford will be examined by an experienced team of commercial, legal and technical advisors to identify ways of reducing ongoing costs in this contract on behalf of the local NHS Trust. The lessons will then be used to drive savings across the full portfolio of PFI contracts.’
So, a government committed to cut back on the use of consultants has appointed a group of, er, consultants to examine the huge financial liabilities now generated by the many PFI and public private partnership contracts signed by the previous government. Back in the mid-2000s, the Treasury was 100% behind the use of PPP. Indeed, the NHS and local authorities were given little option but to use it extensively.
It is instructive to look at what the very same Treasury said in the Budget 2005 about PFI. ‘The government only uses PFI where it is appropriate and where it expects it to deliver value for money. This is based on an assessment of the lifetime costs of both providing and maintaining the underlying asset, and of the running costs of delivering the required level of service… The Government is committed to securing the best value for its investment programme.’
Within government the Treasury alone was responsible for the aggressive propagation of PFI, though a vast private sector interest-group of consultants, lawyers and bankers (who earned big fees from the contracts) developed to bolster it.
All the warning signs in relation to PFIs and PPPs were present in the early days of the rush to use the policy. But the Treasury would consider no alternative for many projects. Now the very same Treasury is having, however indirectly, to admit failure and employ even more consultants to find out how to convince those who signed the ‘value for money’ contracts (closely overseen by the Treasury and its agencies at the time) to cut their service charges. Less than four years separates ‘full steam ahead’ from ‘all engines reverse’.
The real difficulty is that the investors who put up the money to underpin the deals were looking for long-term gilt-edged returns. According to a source quoted in today’s Financial Times, dividend streams are in effect owned by pension funds and other institutions. So, while the major contractors who were responsible for the deals may be willing to assist the government in the hope of generating goodwill when it comes to future contracts, the bankers will be less accommodating. And we all know how difficult it is for the government to get the banks to change their behaviour.
All the ministers who were so enthusiastic for PFI and PPP are now gone. Gordon Brown, more than any other politician, was a zealot for the policy. But, now we know PFIs often offered poor value for money, the Treasury cannot escape corporate blame for requiring so many of these deals to be signed. Despite all the ‘public sector comparators’ and the vast fees earned by consultants in demonstrating that individual PFI deals were value for money, it turns out the policy was deeply flawed.
As ever, no one will be held to account for this dismal failure. As with defence procurement catastrophes, the governmental clock is re-set to zero each time there is a change of government, so no-one can be blamed. There is, in effect, a ‘gentlemen’s agreement’ that mistakes will happen. It is easy to see why successive governments find it easy to introduce radical policy changes without any fear of having to answer for the outcome.
Tony Travers is director of the Greater London Group at the London School of Economics
