The plight of my local hospital trust in Walthamstow shows just how debt is holding our country back. Could this be the time for a windfall tax?
Stella Creasey in The Guardian
Next time you have an appointment cancelled at hospital, or a headteacher tells you their school will be losing staff because of budget cuts, ask how much PFI debt they have – the answer may surprise you. My hospital trust, in north-east London, spends nearly £150m a year repaying its PFI debt – nearly half of which is on interest payments. If Theresa May is serious about taking on the unacceptable face of capitalism, she could save Britain a fortune if she goes after the legal loan sharks of the public sector.
New research from the Centre for Health and the Public Interest (CHPI) shows just how much these debts are hurting our NHS. Over the next five years, almost £1bn of taxpayer funds will go to PFI companies in the form of pre-tax profits. That’s 22% of the extra £4.5bn given to the Department of Health in the 2015 spending review, and money that would otherwise have been available for patient care.
The company that holds the contract for University College London hospital has made pre-tax profits of £190m over the past decade, out of the £725m the NHS has paid out. This alone could have built a whole new hospital as 80% of PFI hospitals cost less than this to construct. This is not just about poor financial control in the NHS – UK PFI debt now stands at over £300bn for projects with an original capital cost of £55bn.
It’s time to grasp the nettle and get Britain a better line of credit
Private finance initiatives are like hire-purchase agreements – superficially a cheap way to buy something, but the costs quickly add up, and before you know it the debt is crippling.
For decades, governments of both main parties have used them for the simple but ultimately short-sighted view that it keeps borrowing off the books – helping reduce the amount of debt the country appears to have, but at great longer-term expense. Its now painfully clear that the intended benefits of private sector skills to help manage projects have been subsumed in the one-sided nature of these contracts, to devastating effect on budgets.
No political party can claim the moral high ground. The Tories conveniently ignore the fact that these contracts started under the John Major government – and are expanding again under Theresa May, with the PF2 scheme. Labour veers between defensive rhetoric that PFI was the best way to fund the investment our public sector so desperately needed during its last government, and angrily demanding such contracts be cancelled outright, wilfully ignoring what damage this would do to any government’s ability to ever borrow again.
It’s time to grasp the nettle and get Britain a better line of credit. That requires both tough action on the existing contracts to protect taxpayers’ interests, and getting a better deal on future borrowing. Some have already bought out contracts – Northumbria council took out a loan to buy out Hexham hospital’s PFI, and in doing so saved £3.5m every year over the remaining 19-year term. But as the National Audit Office has shown, gains from renegotiating individual contracts are likely to be minimal – what is saved in costs is paid out in fees to arrange.
However, the CHPI research also shows up another interesting facet of PFI. Just eight companies own or appear to have equity stakes in 92% of all the PFI companies in the NHS. Renegotiating not the individual deals done for hospitals or schools, but across the portfolios of the companies themselves could realise substantial gains. Innisfree, which manages my local hospital’s PFI and others across the country and has just 25 staff, stands to make £18bn alone over the coming years. If these companies are resistant to consolidating these loans into a more realistic cost, then it’s time to look again at their tax reliefs, or – given the evidence of excessive profits in this industry that shareholders have received – resurrect one of New Labour’s early hits with a windfall tax on the returns made.
Longer term, we need to ensure there is much more competition for the business of the state. Despite interest rates being low for over a decade, these loans have stayed stubbornly expensive. The lack of viable alternatives – whether public borrowing or bonds – gives these companies a captive market. If the government wants better rates, it needs to ensure there are more options to choose between, whether by allowing local authorities to issue bonds, or reforming Treasury rules that penalise public sector borrowing in the first place.
As our public services struggle under the pressure of PFI, Labour must lead this debate to show how we can not only learn from our past, but also provide answers for the future too. The government has already spent £100bn buying the debt of banks through quantitative easing. With Brexit expected not only to add £60bn to our country’s debt but also affect our access to European central bank funds, taking on our expensive creditors is a battle no prime minister can ignore in the fight to stop Britain going bust.