Following on from the article on Job Creation & Fairness (see Categories/Chairman?s Blog/Fairness/Job Creation in the right-hand index column of the opening blog page), something further on the related development of the necessary private sector financing of job-creating projects for public services seems appropriate, when government funds are severely limited as in the austerity climate of today.
One method has been via the so-called Private Finance Initiatives (PFIs), when sources of finance such as banks & investment companies have got together with the required project management, planning, engineering, implementation and operating companies in consortia, and been contracted to Build, Operate and ultimately Transfer (BOT) back into full public ownership, key capital assets such as schools and hospitals. The private consortia are paid back over the operating life of the contract through interest on the investment capital and service charges on the operation; the benefit for the government is to reduce its front-end capital expenditure by spreading the payback over a number of years e.g. until 2041 in the case of the Coventry University hospital PFI. Indeed, by 2041 this hospital will have cost the taxpayer £3.3 billion in interest and service charges, according to Treasury figures, some 8 times its value today (as quoted in the Times of last Sunday).
Many of the over 650 of such PFIs in the UK were set up under Labour to fund the building of new schools and hospitals, using private sector money, to thereby reduce government capital spending at the time by diverting it to future generations of taxpayers, even in the then period of relative prosperity compared with today. It raises questions on the political motives of the government behind such building programmes, as well as their number and necessity during this period.
As Sir Philip Green suggested in his recent Efficiency Review (see Categories/Chairman?s Blog/Sir Philip Green/Efficiency Review in the right-hand column index of the opening blog page), the government needs to improve in its negotiations with the private sector. This can be particularly so in the case of such long-running contracts when e.g. the escalation clauses associated with the on-going service charges for operating a hospital complex, can sometimes lead to levels considered exorbitant over the long term. MPs have apparently, therefore, now formed a 50-strong cross-party group to try and renegotiate PFI contracts because of their total accumulating costs to try and secure taxpayers a rebate which could save up to an estimated £500 million. Although it is said that at the moment PFIs are contractually protected from government cutbacks, there is often the case of major companies in the private sector calling on their suppliers to reduce their contracted supply prices to them, when times are tough. Today there is even a secondary market trading in PFI equities with school and hospital ownership passing from one company to another and e.g. Innisfree the contractor for the Coventry University hospital is now the biggest owner of British schools after the government!
The above is not to say that the private sector should not make a decent profit; profitable companies are key for growth and job creation. It is also all too easy for the media to pick up and colourfully quote things the general public can relate to such as seemingly excessive service charges for items such as car parking for hospital staff, patients and visitors, hanging pictures and installing TVs, school computer equipment and desks etc. This can tend to trivialise the matter somewhat and cloud the overall issue. The government might also find this the case with its plan to put on-line for the general public, the annual budgetary spending details and progress against associated milestones (instead of the previous and so-called Labour targets) of its various departments, in order to reduce the role of central government and quangos. The announcement of the release of such a mass of detail to the media and an anxious, unhappy public (without sufficient selling of the idea in advance and rather akin to the approach for the Big Society – see Categories/Chairman »s Blog/Big Society in the right-hand column index on the opening blog page), cannot be considered democratic management or a suitable substitute for the management responsibility of representative government.