How can anyone fail to see through PFI?

[ciphergoth]

How can anyone think using private money to build hospitals and schools is a good idea? As far as I can see the reasons not to are screamingly obvious and pretty irrefutable - am i missing something?

If it's private, it's an investment. If it's an investment, they'll give money now in return for more money later. If they want more money later, it'll have to come from the taxpayer. Ergo, the total cost to the taxpayer in the long term is greater with PFI.

Is this not the bleeding obvious?

Comments

[zotz]

It keeps the public-sector spending total down because the money is borrowed by private companies rather than the government. This keeps the public-sector borrowing requirement (PSBR) down, which IIRC helps keep inflation and interest rates in line.

The point of the exercise is to get the things built while avoiding the financial crisis that has totalled most other Labour governments. The cost, as you say, is greater costs in the long run, but as that'll largely be paid under (and therefore blamed on) Tory governments, I suspect Gordon doesn't see that as being entirely his problem. Does that sound cynical? Does that sound cynical enough?

In theory, government borrowing would be better because governments, as you say, don't demand profits, and anyway governments get better terms and interest rates on their loans. Unfortunately, government debt is secure enough that banks can use it as collateral on their own finance and borrow against it, effectively increasing the amount of money in circulation unless interest rates go up (Bad Thing for employment).

The alternative would be to fund it immediately out of general taxation. The problem with this is that while the public say that they'd be happy to do this, the public are very possibly lying. The risk is that if this was tried, everyone would claim to think that it was a brilliant idea, and then most of us would go off and vote for the Tories instead. Tony and Gordon and everyone else in the party in the Eighties watched this happen in '82 and '87, and of course again in '92. Tony got elected leader because he was prepared to get the Tories out at any cost and keep them out by any means necessary. The public might accept a slow rise in personal taxation, if it's gradual enough that they don't notice. They almost certainly wouldn't accept one they would notice.

So there you go. Yes, I blame the government, but I also blame the electorate for putting them in the position where the wrong choice looks tempting.

[lovingboth]

The Tories treated income from privatisations as 'negative spending', rather than income, for much the same Enron-type reasons, of course.

If Tony really really wanted to keep the Tories out, we'd have PR by now.

Municipal Bonds

[bootpunk.livejournal.com]

Very big in the US, are muni bonds. Which is, of course, exactly the way the tube should be financed, as it is a local benefit. New hospitals and schools too, could be financed locally. But the Treasury hates the idea of muni bonds, and will never agree to them unless forced at gunpoint by some radical Chancellor.

The Economist put forward another interesting point. A new tube line could be partly off-set by wind-fall taxes for the areas it affects. This was psrtly the case for the Docklands line extension, but the amount contributed - and only by the Docklands Corp - was a pittance cf the cost of the extension. Business and private property all along the route should also have been charged wind-fall taxes, as they all had a nice, big benefit after it opened. Making the direct beneficiaries contribute more would hardly be politically unpopular either.