Was the new High School a stitch-up?

The private finance initiative (PFI but in Scotland PPP, private/public partnership,) is turning out to be a very expensive way to build schools and hospitals. A cross-party committee of MPs has told George Osborne he must wean the government off this money-wasting scheme. Why the sudden fuss? Probably because the Financial Times on August 8th of this year gave extensive coverage to the fact that the taxpayer is paying ‘well over £20 billion in “extra” borrowing costs – equal to more than 40 big hospitals.’

The attraction is that it’s a ‘buy now, pay later’ deal. As in the case of Arran High School, the public sector (NAC) commissions the project, but the private sector built and maintains it. The commissioning authority doesn’t have to raise the money up-front, so if it already has debts, it has not (at least, on paper) added to them. But of course it pushes a huge debt ahead of it, for later generations to face for the next 30 years or so. Maintenance of the building is in the hands of its private provider, not the local authority, as we know to our cost. The bills for checking gutters and changing light-bulbs are apt to be extremely high – far more than if local workers did these jobs.

‘A racket’

George Monbiot, writing in the Guardian 23.11.10, advised that we should stop honouring these private finance deals, since they are against the national interest. He pointed out that the NHS now owes £50bn to private companies for infrastructure that cost only £11bn to build, since the maintenance charges came to £15bn. In the summer of 2010 Edinburgh Royal Infirmary, because of the extortionate terms of its PFI contract, faced a shortfall of £70m. The contract stipulated that it must not reduce maintenance work, so instead it was forced to cut beds, nurses and doctors.

Plainly, these binding conditions are, as Monbiot puts it, ‘an outrage, a racket.’ In his view, the debts resulting from contracts such as the one governing the new High School were incurred without the consent of the people and against the national interest. As such, they come under the legal terms of Odious Debt, usually applied to sums extorted by dictators in the developing world. It means that the debt has not been agreed to by the citizens whose taxes pay for it. In 2008 Ecuador refused to pay debts that had been incurred by previous governments against the wishes of the people.

It is a fact that nobody on Arran knew about the PPP scheme to build 4 new schools in North Ayrshire until we were informed of a ‘done deal’. The blame, however, does not lie with NAC. Monbiot points out, ‘Blair’s administration gave public bodies no choice: if they wanted new projects, they had to use the private finance initiative.’ And the private finance deals are notoriously secretive. They are never published, so nobody can read them – not even MPs. There is no way to be sure if the costs are justified. If a public body wants a new school or hospital, it has to show that a private finance deal is the cheapest way to do it. But the snag is that once a bidder for the job is chosen, the original estimates are junked.

‘Odious debt’ is of course a hot potato, but it is cooling rapidly. Iceland had little hesitation in declaring a ‘Can’t pay, won’t pay’ approach to its creditors after the collapse of its banks, and is doing very nicely as a result. Greece, according to a newly-published book, is thinking of the same thing, on the basis that the Eurozone landed it with a huge loan that it couldn’t repay. The mighty US itself, with debts in the trillions, is shrugging them off through printing money, which comes to the same thing. No cash? Then let’s use the pretend stuff. But it’s worth watching the situation, because PPP’s credibility is badly blown, and the Westminster government seems at last to be waking up to what’s been going on.