IT seemed like such a good idea at first.

Actually it didn’t seem like all that great an idea first time around. When the concept of private finance initiatives (PFI) was dreamt up, they were dabbled with by the Conservatives under John Major but essentially thought of as a bit of a pipe dream and put on a shelf to gather dust.

Chancellor Rachel Reeves has hinted at a new PFI-style scheme (Image: TREASURY)

This was in the era of back to basics – another idea that seemed good, if unworkable, at the time.

Then a new dawn broke. Iron Chancellor Gordon Brown (below) had hit upon a new way to boost public services while remaining, at least theoretically, committed to his fiscal rules. Of course, he and Tony Blair had just dusted off the old PFI idea.

They would the private sector to bid for public contracts. Firms take on the initial costs, wiping that from the Government’s books. Private companies were seen as swifter, more agile than the fat, drowsy bumblebee of the British state.

They could build faster, better and cheaper than the public sector and when it was over, well we just rent it (being a school, hospital or government office block) back from them for the next 20 or 30 years.

They get a long-term money maker, we get to reap the benefits of high public spending, while it looks like we’re playing by the strict fiscal rules we’ve imposed on ourselves, so the New Labour thinking went. As they saw it, they had played a blinder.

And the results spoke for themselves, at least at first. Loads of new hospitals, schools and purpose-built Sure Start centres were flung up across the country.

To an old woman recovering from surgery in a shiny new hospital, knowing her grandchildren are being educated in a shiny new school, it doesn’t matter who owns them at the end of the day. They’re still free at the point of need after all.

It was all going so well

But it wasn’t too long before the cracks started to show. One thing about giving money to private companies – motivated almost entirely by maximising returns for shareholders – is that they often want more. Lots more.

In 2007, the then-chair of the British Medical Association’s consultants’ committee Jonathan Fielden – later to be struck off the medical register for voyeurism – that debts taken on by hospitals were affecting patient care.

Taking the example of the new PFI-built University Hospital Coventry, Fielden said that the debt-saddled hospital was “mothballing services, closing wards and not running all their theatres that they could do”.

The hospital’s trust had been forced to borrow money to fund the first payment of £54m that was owed the private contractor involved in the PFI deal.

After the end of the New Labour era, the coalition government under the Tories and the LibDems were keen to play up the spendthrift ways of the previous administration and so more stories came to light of how Blair and Brown and saddled the public sector with debts it couldn’t service.

A millstone on the neck of the NHS

In 2012, The Guardian reported that government lawyers and auditors were being sent to seven NHS trusts to help them make cuts and renegotiate PFI contracts they were struggling to honour.

In addition to this, the hospital trusts got an injection of £1.5bn in emergency funding.

Then-NHS minister Simon Burns told the paper: “The trusts have got significant problems as a result of these irresponsible PFI schemes that the last Labour government allowed, and we have said, with those, that if they have a regime in place that ensures that the other financial running of the trust, with regard to the provision of healthcare, is either sound or there are realistic measures to ensure they become sound, then we will be prepared to financially help them, solely with the burden of the PFI repayments, because it is a millstone round their neck.”

Trusts also complained that inflexible Treasury rules meant they were unable to buy their way out of contacts which saddled them with debt for decades.

(Image: Archant)

In one remarkable case, the University College London Hospitals NHS Foundation Trust accused the Government of not letting it buy its way out of a contract, even though doing so would save it £30m a year. This was while the contractors were raking in £20m per year and counting.

Stories like this were fuelled by the financial crash, which sent borrowing costs skyrocketing.

By 2009, the Government was lending public money to private companies to finance PFIs.

It was neatly summarised by then-LibDem Treasury spokesperson Vince Cable (below) who said the Government had found itself in the “ludicrous situation” of “having to provide the funds for the private finance initiative”.

In a word, its entire original purpose was shot.  

The Treasury select committee in 2011 found that PFI had allowed the public sector to make “to make big capital investments without committing large sums up front”.

The cross-party group of MPs said they’d “not seen any convincing evidence” that the high costs of financing PFI contracts were offset by immediate term savings.

The committee added it had concerns that “the current Value for Money appraisal system is biased to favour PFIs”.

By 2012, the coalition government had redrawn the rules around PFI, to give the Treasury much greater control. It was imaginatively called PF2.

The Carillion disaster

Then came the collapse of Carillion in 2018. More than 3000 jobs were lost on the bonfire of the company’s “recklessness, hubris and greed”, per a Commons committee.

It had made boatloads of cash off PFI – but still managed to be on the hook for debts worth nearly £7bn when it collapsed.

Few stories summed up the cash-grabbing impulses many felt lurked behind private firms’ sudden interest social welfare.

The Commons committee tasked to investigate the collapse of Carillion was jointly chaired by former Labour MP Frank Field and none other than Rachel Reeves (above) MP.

Field described the company directors as “too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners”.

Reeves meanwhile called for the “break up” of the big four accounting firms, KMPG, PwC, Deloitte and EY. She said auditing companies “pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion”.

So complete was the Carillion disaster that then-chancellor Philip Hammond was moved in his 2018 Budget to declare the end of the PFI era once and for all.