Oh well done Ritchie!

Not that I\’m a huge fan of PFI myself but this is ridiculous:

The Guardian has this morning reported that PFI could eventually cost £300 billion for assets worth vastly less than that.

PFI is not the purchase of assets. It is the purchase of assets plus a 30 year operating lease. That second part is quite important really.

20 thoughts on “Oh well done Ritchie!”

  1. There always were alternatives to PPI / PFI – most of which were cheaper at the headline.

    The Tories didn’t want thousands more unionised civil servants, as well as believing (as I do) that the private sector is better at innovation, therefore could save money (or improve services for the same gelt) in the longer term.

    Gordon Brown (I hate to say ‘Labour’ because this was a personal crusade and failing) simply didn’t want the debt on the books and didn’t care about the long-term costs as he should have been long retired and be basking in the grateful adulation of the masses for his saving of the world.

  2. 1. Utility buildings have a short life, so are immediately worth less from the date of completion. The land, on the other hand still belongs to the Authority…
    2. PFI is further proof, if any were needed, that government (the taxpayer) always gets itself a raw deal. Why? Because it’s not their money and they don’t care. Doubtless meddling in the contracts, changing specs at the last minute or during construction added to the cost. One only has to look at defence contracts to see how the process fails.
    Viz. The Mosquito.

  3. Surely PFI is a perfectly sensible vehicle for funding high risk infrastructure projects whose future revenues aren’t knowable.

    Silly however to use to fund something simple like a hospital or a school.

  4. So rather than paying £180 million up front for a new hospital and then however much for maintenance of the building over time, instead a PFI contract is done and a million pounds a month is paid, with someone else maintaining the building. I can see the attraction.
    Get a load of building work done without paying for it – and as has been said, paying overall for it is someone else’s problem.
    I do have to wonder though – the odd call for scrapping of the schemes currently in operation I come across at time – kinda expensive in penalties?

  5. “It is the purchase of assets plus a 30 year operating lease. ”

    Are PFIs really that bad?

    So it’s like me buying a house freehold and then paying rent to some mythical person for 30 years? What a crap deal.

  6. I find it strange that the Guardian/Left are so against PFI – one would have thought that 30 years of uncancellable public spending would be right up their street.

  7. John Haworth>

    “So it’s like me buying a house freehold and then paying rent to some mythical person for 30 years?”

    No, it’s like someone else is borrowing the money to buy the house, and then renting it to you along with attendant services like maintenance, cleaning, and so-on for less than you would pay yourself. At least, that’s the idea. In the hypothetical case of a brilliant investor, he might well be better off to put his money into investments and rent a house, rather than buying a house, because his investment returns minus rent will be greater than zero.

    Personally, I think PFI’s generally a good idea. It’s a reasonably good way to combine the government’s borrowing power with private sector efficiency. The problem is with the idiot politicians who screwed up the contracts, not with the idea itself.

  8. Hmmm.. rather like us taking on a 30 year mortgage with the lender maintaining the building for that entire time and us paying rent. Don’t have to find massive lump sum up front, do have to pay regular payments, but at the end of the term the building belongs to us.

  9. “Hmmm.. rather like us taking on a 30 year mortgage with the lender maintaining the building for that entire time.”

    Only with a professional gardening service charging £100 per week for maintaining your garden rather than giving your 14 year old son a tenner to mow the lawn on a Saturday afternoon.

  10. Maintenance contracts aside, how can it be a good idea for the government to borrow money via PFI schemes, when it can fund itself much more cheaply in the bond market? Is this anything more than an obscenely expensive accounting trick?

  11. PaulB (#13), it’s a combination of off-balance sheet financing and public sector unions pricing their members at more than their market value.

    And Shinsei (#12), those unions wouldn’t allow you to “give your 14 year old son a tenner to mow the lawn”.

  12. John Haworth (#7), it’s like you buying the land, but then instead of paying a builder to build you a house, you get a builder to build it for you and you lease it from him, the lease payment including maintenace.

    Don’t get hung up on the 30 year thing though. Unlike a house, 30 years is about the maximum life of a hospital before it’ll be gutted and pretty much rebuilt.

  13. PaulB @13
    Labour government. Who knows? Normal economics in suspension for the duration.

  14. Paul.
    Nothing wrong with PFI as a concept. Depends what’s done with it. Labour were never good with the nuts ‘n bolts, were they? Always the big ideas. No attention to detail. It’s all so terribly boring.

  15. And of course not helped by MPs, civil servants, NHS staff etc making changes. After contract signed.
    Two past projects I’ve been involved with in minor ways, one was a computer system to replace a previous computer system and take account of minor changes coming in from a particular date. Government made over 2,000 changes after contract signing….
    Another is a major engineering project – both previous government and this one kept making changes, altering plans, altering what should be included or taken out – after contract signing – then after foundation digging has started, wanted to move the project to a different site altogether….. with a total redraw of plans. Company organising it pulled out in disgust.

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