By Sarah Ensor
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How PFI schemes damage future of public services

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Issue 2369
Warning—PFI schemes can damage your health service

Warning—PFI schemes can damage your health service

Private Finance Initiative (PFI) schemes in Britain have created chaos in the National Health Service (NHS) and have driven hospitals into financial crisis. Hundreds of health workers at Barts Health NHS Trust in east London found out last week that bosses there plan to slash workers’ wages or cut their jobs altogether to save money. Barts Trust bosses won’t admit their financial crisis is due to a £1.1 billion PFI debt that followed a rebuild of Royal London Hospital and other facilities.

Britain’s PFI schemes began under John Major’s Tory government in 1992 to build new public developments such as schools and hospitals. PFIs were designed so the cost of building new facilities wouldn’t appear on the government’s balance sheet. Socialist Worker argued at the time that PFIs were a con trick that would cost us all.

Under PFI schemes, private construction firms pay for building new facilities. They then lease them back to public bodies, such as the NHS, on 25 to 30 year contracts. This locks hospitals into paying huge amounts of interest to private companies. PFI has meant a huge transfer of public money into private hands. Banks can charge private contractors higher interest rates than they can the NHS. And building firms can inflate their prices before passing them on to public sector clients—as in the case of one hospital charged £333 to change a light switch.


This has mired hospitals in a deep financial crisis (see below). Labour opposed PFIs before it got into government in 1997. Deputy leader Harriet Harman called them backdoor privatisation. But Labour extended and expanded PFI schemes after it was elected. Labour agreed with the Tories that PFIs were a cost effective way to raise money from the private sector to fund new developments they said the state could not afford.

The NHS isn’t the only institution that is being drained. Other things once paid for by the state have been turned into cash cows for corporate vultures. This includes road maintenance, schools, housing, waste disposal and weapons contracts. Ballooning PFI repayments—likely to peak in 2017-2018 at £10.1 billion —are a drain on public money. The overall cost of all current PFI contracts will exceed £300 billion according to government figures. Next time a politician claims there’s no money for public services remember where it’s going—straight into the deep pockets of PFI companies.

Bleeding the NHS dry

Peterborough City Hospital is part of Peterborough and Stamford NHS Foundation Trust. Its PFI repayments now cost £40 million a year. And it still has 31 years left to run on its contract. Barts Health NHS Trust is the largest NHS PFI scheme at £1.1 billion—covering six London hospitals. Repayments will rise from £113 million this year to £274 million by 2048. NHS trusts in England spent £459 million repaying PFI debts from 2009 to 2010 according to a report by the Nuffield Trust, a centre right think tank. 

But by the end of the year from 2011 to 2012 the figure had soared to £628.7 million. The government set up a £1.5 billion bailout fund in 2012 for hospitals buckling under the enormous burden of PFI debts. But the money is for private creditors—not for saving hospitals or funding public health care.

PFI is bottom of the class

The first PFI schools built under New Labour were “significantly worse” than other new schools in England, according to public spending watchdog the Audit Commission. Lots of schools needed refurbishment, with leaking roofs or temporary classrooms. But the commission found PFI could not “guarantee better quality buildings and services or lower costs”.

Teachers at St Aloysius school in Islington, north London, refused to teach in a building designed and rebuilt under a PFI scheme in 2010. Contractors Balfour Beatty left malfunctioning fire alarms and water dripping on electrical wiring. The redesign included L-shaped Design and Technology classrooms. Teachers couldn’t see the whole room despite it containing dangerous machinery.

When the Tories got back into government in 2010 they scrapped a raft of Labour’s school building schemes. That left schools still in need. Some PFI schools are still being finished in Wolverhampton, and PFI projects live on in Academies and privately-run free schools.

How Lewisham beat cuts plan

Campaigners in south east London recently overturned Tory health minister Jeremy Hunt’s plans to close the A&E, children’s and maternity services of Lewisham Hospital. Lewisham didn’t have any PFI debt. Hunt tried to close its services to pay off the creditors of neighbouring South London Healthcare Trust. But he was beaten in the High Court, following a mass local campaign involving health workers, trade unionists and local people. It was a major victory against the Tories—and shows the right way to deal with PFI.

Our cash goes down the tubes

New Labour tried another kind of privatisation in 2003—a Public Private Partnership (PPP) on London Underground’s infrastructure and trains. It created two private companies in a 30 year deal worth £30 billion. But both companies —Metronet and Tube Lines—eventually had to be renationalised. They were on the verge of collapsing under the strain of huge debts. This is despite the fact they attacked tube workers’ conditions, made millions of pounds in profit and received millions more in government subsidies. Yet the government still paid the companies behind Metronet and Tube Lines millions to bring them back in house.

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