Aasof’s Reflections

Richard Murphy who maintains the web site ‘Tax Research UK’ has published an article today about PFI. PFI being a bête noire of mine, I have read and re-read the article a few times. Paraphrasing what Richard has written:-

“According to data from HM Treasury £56 billion of projects have now been financed by PFI at a total eventual cost of £252 billion. The ratio of cost to benefit is sufficient evidence in itself of the appallingly poor value for money inherent in these projects, many of which are now owned by banks. If cash has to be injected into the economy to provide liquidity then there can be no doubt that one of the best way to do so for the future benefit of the UK would be to buy out all PFI schemes now. Around £200 billion could be ‘saved . If new legislation to empower such arrangements is required we would argue that is a necessary price to pay to achieve this important social and financial goal for the UK as a whole”.

The private finance initiative (PFI) is one of the most controversial domestic issues of Labour’s second term. It has exposed deep divisions between ministers and Labour activists; it prompted a rare and embarrassing defeat for the party’s leadership at the Labour party conference in 2002; and threatens to finally sever the traditional ties between the party and some of its trade union paymasters. There are also signs that while the public may be enjoying the new schools, hospitals and roads provided under PFI, the method itself is increasingly unpopular. PFI: the issue explained

So, let’s see if I have this right!
The taxpayer has ‘loaned’ moneyto the banks .
The banks have bought up, or financed, PFI schemes with this money.
The taxpayer will pay for these PFI schemes (whether in the long or short term).
The returns on these PFI schemes will contribute to the banks ability to pay back the loans made to them by the taxpayer’s ‘investment’ in the bank.
Thus enabling the banks to pocket the profits gleaned from the taxpayer’s investment, and to throw bonuses to bankers like confetti?

In a nutshell. The taxpayer originally loaned moneys to the banks and is going to pay (not loan) the banks more moneys in the form of returns on PFI schemes, from which profits the banks will then  repay the original loan.

At my age I should be in favour of postponing this debt but the present government is playing the same shell game as New Labour. If it talks about the budget deficit and ignores the impact that debt repayment has on this deficit for future generations, then it is no different from New Labour. It is ‘playing to the gallery’ for short term political gains. That it should continue with any form of quantitative easing is bad enough, that it should increase debt and debt interest is untenable.