Private Finance Initiative

How New Labour got hooked

IT IS another sign of the unhealthily close link between big business and the Labour government. It was recently shown that Labour have committed present and future governments, to paying back £170 billion to banks, private investors and 'entrepreneurs' for the private finance initiative (PFI) by the year 2032. This money covers just 800 schemes for new hospitals, schools and prisons. ROY FARRAR looks at the PFI scheme's history.

TORY PRIME Minister John Major and his chancellor Lamont introduced PFI to try to show that public spending cuts were "not real cuts". PFI, they claimed meant schools and hospitals, etc. could still be built but the cost would be "off the government books".

However, by 1997, apart from a few projects, PFI was little used. But Labour's then chancellor Gordon Brown had accepted the Tories' economic plans that restricted public spending because New Labour and "Prudence Brown" wished to impress the City of London.

At the same time Blair and Brown wanted to be seen to deliver on their election promises of policies to correct the 18 years of Tory public sector under-investment. So after New Labour's victory in May 1997 Blair and Brown gave PFI the kiss of life.

Geoffrey Robinson as New Labour's Paymaster General was given the job of 'sexing up' PFI for big business by allowing the private sector to boost their profits if the financing of their bids became cheaper.

This was possible given that interest rates were falling worldwide and ready money was then available on very reasonable terms. As a further carrot, New Labour promised that the public sector would take a greater risk in these projects than the private sector.

When Kenneth Clarke became Tory Chancellor after Lamont, from 1993 to 1997, he acknowledged the problems of long-term costs from PFI projects.

"Two years after Lamont's launch of PFI, in a speech to the CBI Clarke reinforced the two conditions for PFI schemes: the private sector must really take the risks involved and the taxpayer must receive value for money. This was too onerous for the nervous banks and construction companies that needed to be persuaded of the prospects of making some serious money.

"Although a couple of billion pounds' worth of deals had been signed by 1996, there wasn't sufficient interest in the scheme for it to gain any significant momentum under the Tories." (Craig and Brooks: Plundering the Public Sector. Constable, 2006)

At that stage, Labour politicians like Alistair Darling and Harriet Harman saw through PFI and spoke against it.

These days it needs determined opposition from trade unionists and socialists to what is now an integral, very expensive to us but very profitable to the bosses, part of New Labour's policy.