The collapse of Carillion this week was generally reported as a failure of PFI (private finance initiative), but seems to be more of a warning for the future of the NHS, unless it’s taken out of the hands of politicians.
Carillion’s failure shows what happens when public services are handed to the private sector for reasons other than common sense. Private finance initiative sounds dull but it’s important. It’s a way for governments to spend money without it showing on the books. This is because a private company borrows the money, and the Government repays it.
But it’s always more expensive than just paying for the scheme — private lending is more expensive than public — and the government has no control over its former assets. If the company building your hospital goes bust, you’re stuffed.
The originator of PFI was Mussolini but in more modern times Tory David Willets suggested it for the NHS.
The Tories took up his idea and Tony Blair and Gordon Brown continued enthusiastically where they left off, because of its obvious appeal —government accounts look better, and the bill is paid by the next generation. A win-win for politicians on a four-year cycle, even though taxpayers are paying through the nose in the long run.
The governments use fiddled figures (by excluding inflation and discounting future payments) to prove that PFI is cheaper than just borrowing money, which it isn’t.
Labour used PFI heavily, so the Labour criticism of the Tories over Carillion is a little hollow. George Osborne criticised Labour for its use of PFI but once in power had a change of heart, and followed in the steps of Prudence Brown (and Il Duce). He just called it PF2 instead of PFI.
This column has said before that claims from the Tories that they are giving more money to the NHS are not true. The claim stems from a prediction by NHS boss Simon Stevens, that the NHS needed an extra £30bn over five years but could make £22bn saving in efficiencies.
Osborne read this (he probably told Stevens what to write in the first place) as meaning that the NHS only needed £8bn over five years. In real money, the increase in funding to the NHS has been less than 1% a year since 2010 and will continue at that level until 2020. Before that, the NHS relied on an annual 4% increase in funding.
Jeremy Corbyn has promised an extra £7.5bn in NHS funding a year, so even if that’s on top of Osborne’s £8bn, it’s still less than half what the NHS needs.
(Interesting, isn’t it, that while the NHS begs for money, the politicians can find £1bn to prop up Carillion and another £1bn to prop up Theresa May’s government).
The politicians’ basic problem is that the NHS cannot survive as it is.
We’re all living longer and expect the latest treatment, and it can’t be provided using current mindset that the NHS is free.
So, what to do? If the politicians suggest charging for NHS services, the tabloids will go into a frenzy but as Carillion shows, handing it to the private sector may not be the answer either.
The NHS does seem to be gradually being privatised. I recently had a hernia op and went to a private hospital, funded by the NHS, so a contract has been awarded for that somewhere. (Incidentally, despite all the headline stories about delays, I saw a GP within 24 hours and had the op within two weeks, hardly a failing system).
Nationally, it’s more complicated but given the politicians’ marked reluctance to fund the NHS, some kind of PFI deal (or network of deals) must be sitting in the health minister’s office. The collapse of Carillion has shown what a disaster this could be.
PFI has a sorry list of failures, from schools falling down in Glasgow to fewer beds than promised in hospitals and Liverpool’s famous Parklands High School, which cost £90m to build and is now empty but still costs taxpayers £4.3m a year.
The biggest PFI deal was a £14bn military deal for mid-air refuelling of fighter planes (again, more expensive than the government just buying them). The contract contained the rather basic flaw for a fighting force — the refuelling aircraft did not have adequate protection for flights in war zones.
The trouble with all these deals — and thus with any plans to PFI NHS services — is that to make a profit the private companies will often cut corners, as the money saved is profit.
And as we saw this week, not only do PFI contracts cost more, when they go wrong the tax payer stumps up a second time, whether it’s Carillion or the army bailing G4S at the London 2012 Olympics.
The failure of Carillion is a warning that the NHS wants removing from political control — as people have suggested, a Royal commission might be the first step.