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.