I worked for
Llew Smith, the now retired left wing Labour MP for Blaenau Gwent for 20 years,
and did the background research for all his speeches in Parliamentary debates.
Here are some of his critical views on PFI contracts. They embody some of
the reasons he and Jeremy Corbyn so often voted against the Blair/Brown-led
Labour Governments so many times - because
New Labour was so wrong in deferring disaster to future generations,
while taking the plaudits for public provision in its obsession with
indiscriminate PFI contractorisation.
I think in light of the Carillion
catastrophe, Mr Smith’s speech is worth republishing
Private
Finance Initiative
Mr. Llew Smith (Blaenau Gwent): When my right hon.
Friend the Member for Camberwell and Peckham (Ms Harman) was shadow Health
Secretary, she stated:
"When
the private sector is building, owning, managing and running a hospital it has
been privatised".
I agree with that sentiment. Many
organisations that I shall mention later in my speech have said that that
position has been realised by the implementation of the private finance
initiative, under which public facilities are owned and run by private-sector
companies that either lease them back or charge the public authority for
providing the service.
Some time ago, Unison, which is the largest public
service trade union and has considerable expertise on the subject, warned that
the PFI was the latest Conservative scheme for privatisation and argued:
"Under
the PFI the private sector pays for replacing or refurbishing public assets,
such as computer systems or a new hospital, and is given a very long contract
to operate the assets or to run the associated services and the jobs involved
are transferred to the private company. The private sector recoups the money it
has spent through a charge for the services it provides."
We have heard the views of my right hon. Friend the
Member for Camberwell and Peckham and of Unison, the major trade union within
the public services. Will Hutton, the editor of The Observer, has done
considerable research on the subject. He concluded that the
"PFI is
becoming the means of literally privatising the state"
"it to
be scrapped".
So there is unity and agreement between my right hon.
Friend the Member for Camberwell and Peckham, Unison, the editor of The
Observer and me. That is quite an achievement on a Wednesday morning.
As someone who is neither old nor new Labour, but just
Labour and who represents Blaenau Gwent, the birthplace of the national health
service, I would have expected a Labour Government to scrap the PFI, which,
understandably, was introduced by the Tory Government, who hated the idea of
public service. Yet instead, the present Government are increasingly putting
our future into the hands of PFIs.
Other Opposition parties also supported Labour's
position in opposition and in government. Surely a Labour Government, whose
party constitution describes itself as "Democratic Socialist", should
value public services and seek to extend their role in society, recognising
that they enhance life chances in communities such as mine.
If the Minister is not willing to accept the views of
my right hon. Friend the Member for Camberwell and Peckham, Unison, Will Hutton
or me, perhaps he will accept the report of the Treasury task force on PFI,
which states:
"The PFI
transforms Government Departments and Agencies from being owners and operators
of assets into purchasers of services from the private sector. PFI firms become
long term providers of services rather than simply upfront asset builders,
combining the responsibilities of designing, building, financing and operating
the assets in order to deliver the services demanded by the public
sector."
Given the views of such a wide group of
people and organisations, it is not surprising that the Trades Union Congress
also condemned PFI in principle, instructing
"the
General Council to campaign for the ending of PFI . . . and to press the
Government to reinstate proper capital funding to ensure the future
infrastructure of the public services in a way that does not damage jobs and
services."
Indeed, I remember a Labour policy document in 1995
describing PFIs as "creeping privatisation" and, as always, I support
the position of my party. However, now it appears that the PFI is being
presented as some kind of miracle cure to overcome the problems of financing
our public services.
Peter Riplett, former group economist of Tarmac [Now Carillion- DL]and
hardly a member of the hard left, or even the campaign group, recognised that
"the
initiative will cost taxpayers much more in the long term than the traditional
system of paying for the public investment, either out of current tax revenues
or from borrowing".
The reason is obvious. The cost of obtaining the funds
from the private sector will not be as low as the Government could borrow from
the national loan fund which comes with Government guarantees, is backed by tax
revenues and borrowing and is inevitably and intuitively the cheapest way of
raising funds.
Once again, if the Minister rejects my opinion and
that of Peter Riplett, perhaps he will listen to Graham Watts of the Construction
Industry Council, who estimated that an average hospital project could cost the
final selected bidder as much as 4.3 per cent. of the total project value. As I
said, that is because it costs far more for the private sector than for the
public sector to borrow money because of higher interest rates and the need to
make a higher rate of return.
The financing of the PFI can also have serious
implications for public bodies such as local authorities. That was recognised
in the Audit Commission report entitled "Taking the Initiative--A
framework for purchasing under the Private Finance Initiative". It
discusses the long period of contract in PFI on public bodies and argues that
it could
"restrict
the future flexibility of the body to determine the way the services are
provided".
"Not
only is this commitment likely to limit the ability to switch resources in the
future but, in the event of the need to cut spending, the PFI contract payment
is likely to be protected from any cutbacks. The corollary is that non-PFI
expenditure may have to carry proportionately deeper cuts."
Putting aside all those criticisms, we are expected to
believe that the PFI was intended to be additional to public provisions, yet
the Tory Government left us in no doubt that they intended to substitute for
publicly financed capital expenditure, enabling them to cut the capital budget.
"In our
view the PFI is now being treated by the Government as substantial. It is
enabling the Government to cut capital budgets in future plans."
As that was the conclusion of the Treasury Committee
in respect of the Tory Government, how could the position be different under
the present Government, who for their first two years in office have retained
the same public expenditure plans?
Let us be in no doubt that the PFI is not
providing a public service; it is about making money and profits by cutting the
service provided or the costs involved. For example, eventually fewer staff are
employed--on inferior pay and conditions. New staff are not protected by the
agreements that applied previously.
Allyson Pollock, in an article published in the British
Medical Journal, states that her research shows that PFI
"schemes
are characterised by a marked reduction in available bed capacity of about 25
to 30 per cent."
"PFI
hospitals have adopted very high throughput ratios to compensate for their
dramatic bed reductions that imply no spare capacity whatsoever."
The Welsh Institute for Social Health and Care
recently produced a preliminary examination of three PFI projects in Wales
including the new hospital at Mount Pleasant, Chepstow, in the constituency of
my hon. Friend the Member for Monmouth (Mr. Edwards). It stated that a private
consortium was chosen to design and build the facility on the sight of the
former Mount Pleasant hospital. The trust granted the consortium a peppercorn
lease for the land and paid an advance capital sum of £3.2 million to the
consortium in order to reduce the annual revenue cost of renting the facility.
Without that capital advance, the annual charge would have been £1.2 million.
With the advance, the consortium will receive £756,000 per annum, to make the
facility available.
The report went on to say that, as part of the overall
deal, the NHS was able to release land--27 acres in all--at St. Lawrence
hospital and at Mount Pleasant hospital. By selling the land directly on the
open market, the NHS was able to make £440,000 per acre. Consequently, that
cash was available to the national health service.
The report said that the outline building case for the
new build at Mount Pleasant estimated that the cost would be £13.7 million to
provide an 84-bed unit with minor treatment, X-ray, community deal and
out-patient facilities. Thus--this is the important point--the income from the
land sold, which was equivalent to £11.8 million of the assumed capital cost of
the public sector comparator, would have financed 86 per cent. of the new build
cost if the trust had been allowed to retain it.
The scheme therefore did not have to take the PFI
route to acquire most of the necessary capital funds, as the land equity was
almost sufficient to provide them. Moreover, under the rules currently
operating in the national health service, most of the income--less the £3.2
million advance payment--was forwarded to the Welsh Office, presumably to be
used in other parts of the NHS. The Welsh Office should examine that practice,
and consider changing it.
Before entering the Chamber today, I was speaking to a
fellow hon. Member, who approached me and said that a school in his
constituency was being built under the PFI. He said that the project's legal
costs were about £45,000. His community did not benefit from that money,
although I suppose that the lawyers did. The people in his community lost a
benefit, as two teachers could have been employed with that £45,000. The Labour
Government--who have a different set of priorities from the previous
Government--must appreciate that £45,000 spent on two
teachers is better than the same sum paid out to a set of lawyers.
Loss of accountability is another problem
with the PFI. Often, information on PFIs is withheld because of excuses of
commercial confidentiality. We all know that commercial confidentiality is
often used as an excuse in preventing the public from finding out what is
happening in certain areas.
If there is a problem with a PFI contract, who will be
responsible for dealing with it, especially if the firm originally involved in
the project and holding the equity is sold on to another company?
Accountability is affected also if a council's cash and other assets are
transferred to a company gaining control of a PFI project. For how long will
contracts be monitored, especially if a council has lost many of its own staff
to the company taking over a PFI?
Why have successive Governments been so eager to
support the PFI? Unison and the Welsh Institute for Health and Social Care
agree that there are two main reasons for the support. The first is the
requirement to reduce the public sector borrowing requirement, so that we can
meet the Maastricht criteria. Governments hope that the PFI will remove
investment from the public sector balance sheet. Therefore, as a community, we
are expected to forgo services so that we may fulfil the Maastricht criteria.
It is therefore not surprising that some hon. Members continue to oppose
Britain's entry into the single currency.
The second reason for Governments' support of the PFI
is their desire to introduce market-type incentives into public services, as a
means of improving productivity. Most people welcome improved productivity.
However, the type of productivity increases that I have mentioned today and
that has been documented by many researchers in hospitals and other
establishments receiving PFI funding has been achieved only to the detriment of
the person--the patient, for example--using the service.
I should like to think that all the concerns expressed
by the organisations that I have mentioned today are unfounded, but I do not
believe that they are. My position is identical to the position taken by Labour
in 1995, when we said that the PFI was equivalent to "creeping
privatisation". I therefore support the TUC's campaign to end the PFI.
I want a Labour Government who defend public services
and believe in the concept of service. Public services enhance the life chances
of our communities, and not the life chances of a few people who think of
public service as a way of making money--profits--at the community's expense.
We are asking the Government to put people before profit.
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