Monday, January 25, 2010

PFI is an outrageous scam

The Independent on Sunday has a useful review of the Private Finance Initiative (PFI).

If the nation needs a new school or hospital, instead of the government creating the finance as part of its service to the community, it asks a private corporation to build it, and commits the community to paying back at interest over decades.

"667 school, hospital and other public-sector programmes with a capital value, or price, of around £55bn [have been started]. The good news is that more than £37bn has been paid. But the overall bill for the contracts is more than £262bn, and this will not be fully paid off until 2047. And that is not all. With a fresh catalogue of further projects valued at £11bn – in capital costs alone – currently under negotiation, Britain's liability for PFI projects since 1997 could exceed £300bn...payments for the Crown Prosecution Service's Compass IT system come to £670m over the 10 years of the contract, 37 times the £18m capital value.And the nature of PFI deals means that payments still have to be made even if the project is abandoned. Balmoral High School in Belfast closed six years after it was built, when pupil numbers halved. However, the Northern Ireland Department of Education owes the contractor £370,000 a year for the next 18 years.."

The article lists a number of politicians who have personally benefited from their Government's PFI decisions.

In essence, Government policy is mortgaging our children's future to pay for present developments. The policy depends on the assumption that private corporations should have a monopoly on the provision of finance, through issuing debt bearing loans. There is no law of nature that says that this is the only way to make money available. Government does still create money, through the seignorage that it gains by printing and minting currency notes and coin, but this only amounts to about 3% of the new money that comes into being - the other 97% is created out of nothing by banks when they issue loans. In the last year, Government has issued money as quantitative easing, but this issue has been to banks, to try to fill the huge void that they have brought about in their account sheets because of ill-considered actions.

Government issue is firmly associated in public perception with hyper-inflation, but this is a false link. Inflation happens if there is more money in circulation than goods and services, and hyper-inflation is associated with extraordinary situations like civil war and mad dictators. We are not yet in that position in the UK. If inflation does start to cut in, Government can withdraw money from circulation to rectify the balance.

PFI is a scam. Good on the Sindy for coming out against it.

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