Should the private sector be involved in providing public services?

There was a bad reason for the Private Finance Initiative, and several good reasons.

The bad reason was much used under the Blair/Brown Labour government. They wanted to pay for a number of new schools and hospitals without the capital cost appearing on the public accounts. They therefore asked the private sector to borrow the money to keep it off the government balance sheet. The government can usually borrow more cheaply than private sector businesses. Bad PFI contracts sometimes resulted, with the state simply paying more to borrow through the intermediation of a PFI contract. In practice  much of  the risk of the projects rested still with the taxpayer who could end up with  a bad deal.

The good reasons for PFI are that the private sector can do come things better and more cheaply than the public sector by specialising and managing them well, and the private sector can take on risks that would otherwise fall to the taxpayer. When the Thatcher government first got interested in the idea of more private sector help in delivering public sector projects and services it developed a set of rules.

Where the private sector wanted to provide a regular service by employing the staff and managing the tasks, the public sector had to organise fair competitions for the work and had to demonstrate there would be savings over the contract period compared to doing the work in house. When Councils and the central government contracted out items of service like refuse collection, cleaning and catering, there were usually substantial savings and a tough  better policed standard of service required. The private contractor was on risk for managing the task and the staff, and faced penalties for failure to deliver the required quality and quantity of service. The public sector still had important roles in deciding how much service it needed, what the standard should be, and in policing the contract.

Where the government wanted the private sector to undertake the financing and delivery of a major capital asset there had to be sufficient transfer of risk to make it worthwhile for the public sector. The UK public sector has in the past had a poor record of controlling the costs of major projects and delivering them on time, though the current government believes it has sorted out many of these difficulties. A design, build, and finance contract for the private sector  clearly got over any risk of expensive overruns and delays for the taxpayers. The extra cost of capital that the private sector would incur could  be more than offset by better discipline in how long it took to build and how much it cost to build. If the private sector was unable to cut costs as it thought then it was on risk to absorb the overruns. One of the most successful examples of a design, build, finance and operate contract was the Dartford crossing. The private venture was allowed to charge a toll and to collect it for as long as it took to recoup their outlay and an agreed profit. The  bridge then passed to the state without debt as a free asset. The private sector still had plenty of incentive to build to budget and to get on with generating the cashflows, as investors wanted an early pay back.

It would be wrong to drop the involvement of the private sector in the provision of public services as well as impractical, just because one large company involved in public provision has gone bankrupt. It is important that shareholders, bondholders and lending banks are not bailed out by taxpayer money, which the government has been clear it will not allow. For the system to work there have to be penalties for the private sector for error and failures. The story when told will probably show us that the private sector became too keen to take on public sector business at very low  margins, which turned out to be loss making when they came to manage the risks they had willingly accepted.  Private shareholders have ended up subsidising the state as a result by supplying services and facilities below cost.

As a Minister I did turn down a proposal for a  PFI project on the grounds that it was primarily a way of paying more for borrowing and substituted a public sector project. I took the rules seriously, and wanted to see there was either or both a significant transfer of risk or clear evidence that good quality provision would be cheaper through PFI. That should continue to be the guidelines for the UK government and Councils. Labour’s attack on all of this is absurd, given the big role the last Labour government played in extending PFI and contracting out, and given the extensive use Labour Councils rightly make of these techniques today. One of the curious features of Labour in office in recent years locally and centrally is the way they have come to rely very heavily on private sector contactors and sub contractors to deliver public services. Much local policy making relies heavily on private sector consultants rather than on officers of Councils, and it was Labour who also introduced the idea of private sector healthcare performing operations for the NHS.

 

 

 

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111 Comments

  1. Peter Wood
    Posted January 19, 2018 at 5:30 am | Permalink

    Good Morning, can you help us, was the Boris serious about a grandiose (PFI?) initiative yesterday, or was that just another case of speaking before thinking?

    • hefner
      Posted January 19, 2018 at 8:14 am | Permalink

      We have to put all the odds on our side, and make sure it is made by Carillion under the supervision of Chris Grayling.

      • Peter Wood
        Posted January 19, 2018 at 11:13 pm | Permalink

        You are the only one to get the irony! 🙂

        • Hope
          Posted January 20, 2018 at 10:23 am | Permalink

          Nothing in your post about EU competition rules or EU rules on state aid. We had this with Tata still and the EU energy policy making it uncompetitive, the useless Javid was on a jolly when thousands of jobs were at risk and the govt very limited because of EU policies. Why would any right thinking person want to remain hamstrung by a two year Extension, not transition, that May is pursuing?

    • agricola
      Posted January 19, 2018 at 8:20 am | Permalink

      I have no idea what Boris might have said about PFI yesterday. However can I suggest your try to read many of the articles he has published, now in book form. Within you may find a rare true conservative advocating much common sense.

    • Ed Mahony
      Posted January 19, 2018 at 10:04 am | Permalink

      If Boris can support his argument with facts + figures then why not look at it?

      I don’t know whether he can or not. If he can’t, then he should keep quiet until he can. If he can and the facts + figures don’t really add up, then have to ditch it,, at least for now.

      • Ed Mahony
        Posted January 19, 2018 at 10:31 pm | Permalink

        OK, The Times suggest the Boris Bridge could cost £120 bn.

        £120 bn.

        Not forgetting risk of damage from ships, being closed down frequently because of winds, terrorist sabotage, and the huge cost of maintenance.

        And whose going to pay for it? Whose going to build it? (Carillion). Whose going to run it? (Virgin Trains).

        And for Boris to announce this without offering up some kind of basic business plan, to support it, is seriously concerning.

        • rose
          Posted January 20, 2018 at 11:56 am | Permalink

          Engineers yesterday said the wind problem has been solved nowadays by building shields and the bridge could be high enough to allow for all shipping. Too much spite greets his every good idea.

          Anyone would think he had laid on a seminar for the world’s press, announcing this as a decision taken, when in fact he was only suggesting it as an idea to Macron in a friendly and constructive spirit.

          There could be big problems with bringing over the needlework.

          • rose
            Posted January 20, 2018 at 12:05 pm | Permalink

            Other experts yesterday said we could not carry on sensibly with just the one link. The tunnel needs maintenance increasingly often, suffers from fires, is vulnerable to you know what, and we should not have all our eggs in this one basket.

          • Ed Mahony
            Posted January 21, 2018 at 12:58 am | Permalink

            The real issue isn’t wind or ships or sabotage but whether it can be justified economically (Boris has offered up no financial plan).

            And it’s not particularly good manners of the Foreign Secretary to take the spotlight off our Prime Minister (whatever you think of her) during President Macron’s visit to the UK.

          • rose
            Posted January 21, 2018 at 6:02 pm | Permalink

            “And it’s not particularly good manners of the Foreign Secretary to take the spotlight off our Prime Minister (whatever you think of her) during President Macron’s visit to the UK.”
            I am sorry Ed, but this paranoia about Boris is absurd: he can’t do or say anything without this accusation. Given how inadequate she is, how is anyone of any intelligence or energy not going to take the spotlight off her? They all have to keep mum in case she is shown up for what she is. But we can all see what she is, and she needs all the help from the Foreign Secretary she can get.

            Mrs T’s cabinet was full of very vocal people and they helped her to win the elections. No-one dreamed of saying they were upstaging her, even though many of them were more eloquent than she was.

          • rose
            Posted January 21, 2018 at 6:20 pm | Permalink

            “(Boris has offered up no financial plan). ”

            This is the most unreasonable bit of all: how can you expect a financial plan at that stage of the conversation?

    • Hope
      Posted January 19, 2018 at 11:26 am | Permalink

      The criminal justice system is worse looking after prisoners than before. 300 wrongly let out early before Christmas, drugs everywhere, liberalisation of criminal justice system has led to an increase in prisoner numbers. Most cases of murder dropped to manslaughter to allow prisoners to be released after a couple of years to murder again. Gauge five days ago said the govt would do everything possible to prevent the release of Warboys. Today, five days on, he dropped his JR. Weak on crime weak on offenders.Those poor victims.

      May yesterday agreed to fast track and let more immigrants in from Calias and gave £44 million of taxpayers money away to France to do so! Utterly useless, how will she achieve her pledge to cut to thousands target or is it as strong as Gauke’s promise five days ago!

      The EU understandably sees her as a remainer and weak to all their demands. JR, I note you still have not answered why there was a sham debate and vote on single market and customs union when May has already agreed regulatory alignment- meaning staying in by another name? Is her agreement illegal or ultra vires? I say this because the Supreme Court said parliament would decide if the UK left the EU and parliament voted to leave, it also voted to leave the single market and customs union, so has she defied the court and parliament by her unilateral agreement? EU wants phase one enacted in law ASAP.

    • Hope
      Posted January 19, 2018 at 5:40 pm | Permalink

      Why do we not follow Germany’s economic lead? Self serving protectionism to build up a surplus.

      Good to see the IMF join Trump and the rest of the world to condemn Germany’s 8 percent trade surplus. Still no action/sanction by the EU. Germany is a stickler for rules when it suits, particularly over all issues Brexit. How can Eurozone countries compete with it, why should other countries suffer at Germany’s imposed terms i.e. Ireland and Greece for German reckless bank lending. Trump has put them on watch for currency manipulation. Can we expect pipsqueak May to say anything or meakly keep quiet even if it harms our economy? May still content to hand over billions to them. She never gave a definitive answer to French interviewers how she would vote now in a referendum! Yet she is allegedly leading Brexit!

  2. Duncan
    Posted January 19, 2018 at 6:18 am | Permalink

    1300 people died at NHS Mid Staffs as a result of public sector incompetence, negligence and downright criminality. These appalling abuses were allowed to continue for years without intervention. And what did the BBC, public sector unions and all their liberal left allies in the media? They stayed silent when they knew it was happening.

    How many NHS staff at Mid Staff have been prosecuted to date for the abuses that occurred at MS? One, yes just one and I believe that nurse was foreign. This is the power of the unions in the public sector applying pressure on friendly politicians and the CPS.

    What would have been the consequence if these abuses had happened in a private hospital? Let me tell you. We would have seen the full powers of the state brought to bear on every member of management and any employee proven to have had committed some form of abuse or negligence

    This isn’t about PFI. This isn’t about public-private. This is about an employee doing their job to the best of their ability and reporting abuse when it happens. This is about not allowing a culture to develop in which employees and their unions rule the roost and dominate. This is about not allowing the unions to dictate at every turn even when criminality is at work.

    It’s almost as if, again, private is bad, public is good. This is tosh, total leftist tosh. They pick and choose their examples to prove their boastful bigotry while conveniently ignoring the most appalling abuses that have happened in the public sector over the last 30 years

    The public sector is a vested interest in its entirety and the entire construct will fight all attacks to protect its privileges. It’s a cosy club across the board and the private sector is abused to pay for it all.

    And the unions. Well, where were they during Mid-Staffs? where they during the grooming scandal? Silent and absent

    I am sick and tired of the hypocrisy and double standards. I am tired of the weak kneed response from this hopeless PM

    Stop pandering to the unions. It is these organisations that conspire to create and construct a culture that protects their members from all the consequences of their irresponsibility and leads to a ‘who cares’ working culture

    The private sector keeps this nation financially afloat. The public sector generate ZERO REVENUES. They are the unproductive and it is the private sector that pays its costs. It is unfortunate we have a political class who no longer has he courage to confront the bankrupt public sector. This area of the economy will bankrupt the country one day

    • Duncan
      Posted January 19, 2018 at 6:28 am | Permalink

      As an aside. The unions care about the unions. They care not one jot for the patient, the end-user, the taxpayer. For the unions, it’s all power, influence and control. They want to rule the roost and amass political power

      They have been allowed, once more, to build their destructive presence and again, in time, they will wreak havoc

  3. Mick Anderson
    Posted January 19, 2018 at 6:32 am | Permalink

    PFI has become far too easy. the local council were able to use it to (unnecessarily) replace all the street lights around here, and they should not have been put in a position where they were allowed to run up that type of debt.

    Your example of the Dartford Crossing is more an example of how the taxpayer is so often cheated by Government. The original deal was indeed that one the tolls had paid for the construction, the crossing would be passed back to the Government and made free to the motorist. What actually happened was that the crossing was sold to a different private owner (French, I think) and now we’re stuck with tolls forever, and draconian fines if you fail to successfully use the internet to make the “easy to do” payment.

    I agree that private companies are more likely do a better and cheaper job than public run bodies, but the Government should be borrowing the cash to do the job. (OK, ideally we’d be in surplus and able to afford things, but you need proper Conservatism to achieve that). It means that the debt is properly accounted for, and the interest rates are as low as possible, Just pay the private firm to do the job; don’t give them the bonus of interest on any money used.

    Then there’s the whole “egg in one basket” problem caused by the laziness of the bureaucrats dishing out the contacts, allowing the likes of Carillion to hoover up vast numbers of contracts to the exclusion of others. That’s different problem for another thread.

    The original intention of PFI might have been laudable (personally I never liked the idea), but those in public office simply can’t be trusted to use that sort of device honestly.

    • Leslie Singleton
      Posted January 19, 2018 at 7:22 am | Permalink

      Dear Mick–If there have to be tolls (but I too seem to remember that they were supposed to cease??) there should be toll booths and a pox on the high tech, just plain silly, system in place at present if one is not a frequent user

      • Fedupsoutherner
        Posted January 20, 2018 at 7:49 am | Permalink

        Leslie I’m not a frequent user but think the system is brilliant. No queuing to pay. Can’t imagine the tail backs with a booth.

        • Leslie Singleton
          Posted January 20, 2018 at 10:44 am | Permalink

          Dear Fedup–That’s what makes a horse race–Only wait till your number plate gets entered wrongly (eg by the shopkeeper selling the tolls)–You might find yourself revisiting your position. I know one shop owner who will no longer sell the tolls (which he told me he doesn’t get paid for) because he wasn’t sleeping nights worrying about his “boys” on the till misreading and mixing up letters and numbers–0 instead of O etc–and the resultant unhappy cutomers who were fined with it being almost impossible to prove innocence because somebody else’s fault. Besides it’s a pain setting the crossing up even when it works.

    • Narrow shoulders
      Posted January 19, 2018 at 9:40 am | Permalink

      That’s different problem for another thread.

      I disagree, it is part of the same argument. Surely the outsourcing to private enterprise introduces competition to bring benefits in quality and price. Not dispersing the contracts fully just introduces another large quasi public organisation into the equation.

      Large academy chains have replaced local authorities in the education sector in the same way.

    • Hope
      Posted January 19, 2018 at 11:32 am | Permalink

      We are still paying for Prescott’s empty fire brigade communication centres under PFI across the country, estimated to cost about £500 million to the taxpayer!

      May could not help Carillon but could give away vast sums to foreign aid £14 billion, France £44 million and the EU estimated about £50 billion not legally liable to pay!

      Get rid of May she is a national embarrassment. I cringe each time she speaks and feel like reaching for my wallet. Still Javid wants to increase community charge by a whopping 6 percent while may gives more of our taxes away! taxes were lower under Labour despite what May says.

  4. formula57
    Posted January 19, 2018 at 6:39 am | Permalink

    Did you perhaps omit some words at the end of the sentence “For the system to work there have to be penalties for the private sector for error and failures” that might have been “except where banks are involved, where outrageous bonuses do not pay themselves so taxpayer funds must be provided”?

    Just why should there not be some people’s QE for Carillion? No question at all about the money not being available and surely it could be applied to save the business (under replacement management) whilst leaving shareholders and lenders out of pocket.

    The misuse of PFI to the detriment of taxpayers is yet another high price we will all pay for the decision of Gordon Brown to enter public life.

    • Denis Cooper
      Posted January 19, 2018 at 9:11 am | Permalink

      Or the decision of John Major to accept the Maastricht Treaty.

    • Lifelogic
      Posted January 19, 2018 at 11:26 am | Permalink

      Why were the banks lending this company so very much when it seems to have had so very little by way of assets to secure such lending? Yet often small and medium size companies with assets can not borrow on sensible terms?

      Why are the UK banks often both competitive and also totally inept. I support the second causes the first. You get 0.5% if you lend to them unsecured but they want base + 3% -30% if you borrow! Yet the borrow is often the better credit risk! Basically the government and EU are not over regulating the banks to death.

      • alan jutson
        Posted January 19, 2018 at 11:43 pm | Permalink

        Lifelogic

        “Why were the banks lending……”

        Will be interesting to look at the last audited accounts, only history will serve to check if they were actually an accurate picture of the Companies finances..

    • forthurst
      Posted January 19, 2018 at 2:35 pm | Permalink

      Carillion was yet another example of a conglomerate run by accountants who spent their time in acquisitions and mergers and financial sleight of hand to hide the consequent build up of unsustainable debt, a conglomerate whose objective was size not synergy. When will the public sector not understand that bigger is not necessarily better nor that a one-stop-shop should be the go-to choice for public contracts.

      Do we need another companies act or should holding companies continue to be allowed to hide debt off balance sheet and apply ‘goodwill’ as an Asset in it? If the main activity of a business is civil engineering, then the CEO should be a civil engineer not an accountant.

      The net result of the existence of Carillion is the destruction of good businesses and the disruption of the lives and financial well-being of those that would have been doing the actual work whoever was the main contractor quite apart from the mess of unfulfilled government contracts. The government must ensure that existing contracts are not sold off at fire-sale prices to vultures and should insist on acquiring those where the public interest requires.

  5. Sir Joe Soap
    Posted January 19, 2018 at 6:41 am | Permalink

    The problem is that the government never looks at the other side of the coin, viz. what if it just allowed private contractors to supply the service direct to private buyers. In other words, government just stepped away and did no more than legislate for social purposes that, for example, citizens had to pay for a minimum of health care provision for themselves and families, they had to have rubbish collected and so on and so forth. Government could even run a standards authority, be it for healthcare or rubbish collection, to ensure a minimum standard was upheld. What government SHOULDN’T do, is mess around giving favoured groups of workers pay rises or freezes at any particular time, deciding that hospitals or schools be built in specific areas to gerrymander groups of voters, or generally fiddle around in the system.
    With private to private provision, without government playing piggy (sic) in the middle ,these PFI deals wouldn’t be needed anyway.

    • eeyore
      Posted January 19, 2018 at 7:28 am | Permalink

      Well said Sir Joe. Our host gives us a carefully nuanced analysis of the pros and cons of PFI. The Leader of HM Loyal Opposition, who has no time for nuance, calls it “a racket”. But I go with Samuel Pepys’ conclusion when he inspected the Royal Dockyards in the 1660s, as true today as it was then: “Lord, I see the king can have nothing so cheap as other men.”

    • Sir Joe Soap
      Posted January 19, 2018 at 7:37 am | Permalink

      So the question is more aptly phrased “Should the government be involved in providing (many) services to the public?”

    • Ed Mahony
      Posted January 19, 2018 at 10:00 am | Permalink

      The country needs some public sector

      1) Some people aren’t up to working in the private sector. If these people weren’t working in the public sector they might be on the dole and/or end up with depression and other health issues costing the government more in the long run.

      2) Many wives want to work in the public over the private sector so that they can focus more on their children (private sector more demanding). There’s lot of evidence to show that strong family life benefits the well-being of a country in the long-run for lots of complicated reasons.

      3) Many older people want to wind down in their careers, from private to public sector, and focus on other things. Perhaps charity work here in the UK that benefits us all indirectly, including savings to the government.

      The public / private sector mix is healthy for our country in general. Sweden, Denmark, Norway and Finland (relatively high public sector and relatively high GDP per capita) are evidence of this. And Japan and South Korea with lower public sector than us and lower GDP per capita than us are evidence of problems of low public sector). Also, although there’s a lot we can learn from the US economic model, let’s not forget that it has terrible social problems we want to avoid at all costs here in the UK.

      • Ed Mahony
        Posted January 19, 2018 at 10:02 am | Permalink

        I meant a lot we can learn from the US economic model – both good and bad.

      • rose
        Posted January 20, 2018 at 12:13 pm | Permalink

        I think you will find that those once civilized little homogeneous social democracies of the North are now having social problems, as we are.

        • Ed Mahony
          Posted January 21, 2018 at 1:01 am | Permalink

          True. But not as bad as the US. And anyway, still not a reason to get over-excited about the US’ economic model as some here do (whilst ignoring what we can learn from the US’s high tech industry, whilst focusing too much on the US’s financial services industry important as that is of course).

    • libertarian
      Posted January 19, 2018 at 2:25 pm | Permalink

      Sir Joe S

      Absolutely, good post. You are totally right. Our politicians and civil servants never take the view that its not up to them to provide things.

      What is funny is that all the failings of the EU that they point out are also the failings of our own governments too, who interfere in exactly the same way

      Leave us with our own money to source our own services

      • acorn
        Posted January 19, 2018 at 7:19 pm | Permalink

        Leave us with our own money to source our own services, you say.

        What money would that be? Where will you be getting such money from, if you are not getting it from your own currency issuing government. Remember, anything you get from a bank has to be repaid to that bank. And, the government insists that you pay your taxes in its own monopoly currency.

        How will you source your own defence system; nuclear submarines etc. How will you source your own legal system, etc etc. You have no money of your own, only the government’s money.

        • Edward2
          Posted January 19, 2018 at 9:03 pm | Permalink

          Each of us pay thousands in tax every year.
          Assuming average earnings.
          The NHS isn’t free.
          It costs each of us many hundreds of pounds every year.
          Private schools cost only a little more to educate childten than state schools do,despite economies of scale.

          • acorn
            Posted January 20, 2018 at 10:01 am | Permalink

            Taxes don’t pay for anything, they disappear into the Treasury “units of account” spreadsheet, creating a net zero over time. Any positive values in that spreadsheet are units of account that have been created by Treasury deficit spending, that it hasn’t got back yet by taxation; because the non-government sectors keep saving the Treasury “money”.

            The Treasury spends long before it taxes to get its money back.

          • a-tracy
            Posted January 20, 2018 at 12:05 pm | Permalink

            An employee who works full-time (37.5 hrs per) and earns the minimum national living wage earns £14,625 their national insurance contribution = 14625-8164= 6461 x12% = 775.32 pa + Empr secondary contribution 6461 x13.8% = 891.62 so a total national insurance contribution of £1666.94. We were told by Gordon Brown 2% of this was ring fenced just for the NHS a few years ago, and prior to that we were told half for state pensions and dole insurance and half for healthcare (£710 approx) and healthcare spending is approx £2000 for every man, woman and child in the U.K. When Labour points out the Tories voted against the creation of the National Insurance Scheme 21 times we are never told why they voted against it? Was it because they knew it was a giant Ponzi scheme and eventually the people at the end of the line would get nothing out of it, either in State pensions (maybe kids you’ll get something when you’re 70 but you’ve still got to contribute now – and you think this is sustainable?) or simple prescriptions for flu to stop epidemics or even appointments to see your GP or hospital procedures for an entire month.

            From Apr 2018 £7.83ph = £15,268 gross.

    • Lifelogic
      Posted January 20, 2018 at 2:54 pm | Permalink

      Exactly and this is very easy to do (especially for health, schools, universities and most infrastructure and is hugely more efficient too. It also delivers what people actually want unlike government.

  6. agricola
    Posted January 19, 2018 at 7:57 am | Permalink

    Absolutely they should, but under the application of common sense and a degree of light political control. They are after all working for the people and politicians represent the people, well mostly. Perhaps you might consider them offering their services via commercial organisations run along the lines of the John Lewis Partnership. There is then slightly more social awareness than that exercised by fat cat directors and baying shareholders.

  7. Miss Brandreth-Jones
    Posted January 19, 2018 at 8:00 am | Permalink

    My experience with the mix is that private companies try to run people as though they were off the conveyor belt .I was born in Bolton but the NHS made me. You learn to be flexible , you learn to quickly assess priorities , as early as studentship you begin to manage wards and learn about the intricate workings between , people , health/disease and organisation . You begin to regard what is sensible and those who try to blow things out of proportion , You look at the career motivated trouble makers and those who really take pride in their work. You begin to develop as a professional, self directing study and completing organised study , you begin to profile a life’s work and apply it to every sort of person who is suffering. You begin to understand and receive put downs and ignore much abuse. You learn not to react personally and try an perfect every intervention.
    The private sector get on their computers and can only see what is tapped in and forget that people are more important than paper work .
    My experience is that I tapped a piece of information negating a clinical symptom to rule out a worrying problem . It was private sector and a new role .The soft wear corrected it with predictive text . I realised , checked it and corrected it , clicked enter and it went back to its frightening opposite without my realisation. These are the very serious problems we are faced with .Private companies do not see it like this. They do not have a sense of proportion and argue on paper work and not about obvious physical facts.

  8. Mark B
    Posted January 19, 2018 at 8:07 am | Permalink

    Good morning.

    PFI’s can be very good in certain circumstances. One such that I was involved in many years ago, and one I very much liked of the then Conservative Government was Compulsive Competitve Tendering (CCT). CCT was designed to make Local Government Services better by exposing them to market forces. In essence, anything that was supplied by the LA and which could be done privately was put out to tender with the LA Office putting in a bid itself. This forced management, which was always bad in my view, to look upon their departments more professionally. If they lost the contract redundancies would follow. Naturally they were terrified and realised that finally, if they wanted to keep their jobs they had at last had to do them. Welcome to my world I often thought. 😆

    If as someone has suggested that the Labour governments of past just used PFI to take money off the books to help get us into the EURO then I can only say that, once again our association with this project once again does us harm and, at the hands of those we elected. A shamful endictment if true.

  9. Annette
    Posted January 19, 2018 at 8:28 am | Permalink

    That’s all well & good IF proper controls & management are applied, but it only works in the short to medium term dependent on the controls. The same fate then befalls the State as with many large companies that outsourced their facilities.
    There are, indeed, big benefits to be achieved in the initial undertaking because of competition. Then the ‘project’ atrophies. Internal innovation is lost as the expertise now resides in an outside body, and progress becomes almost at the behest of the sourced company. ‘Company’ knowledge dissipates, resulting in ever more ‘re-inventing the wheel’ expense. The outsourced ‘facility’ no longer has an effective competition and as we’ve seen with Carillion, using their initial contract, hoover up many other services that they may, or may not, be suitable for as the ‘preferred contractor’. We’ve also seen Virgin sueing for not being awarded a lucrative contract.
    As with most things, a balance is not sought, and the balance is now not on the side of the sourcer. Risks are retained whilst the benefits dwindle over time, transferred to the ever more ‘powerful’ outsourcer, many of which then outsource to SME’s. Why not cut out the middleman and go straight to the SME’s, retaining a core of experts (not box tickers)? Plenty of competition to keep standards up. Proper control & management is retained, as is ‘Corporate memory’ & an incentive to innovate.

  10. Denis Cooper
    Posted January 19, 2018 at 8:44 am | Permalink

    No mention that both Major and Blair planned that we should join the euro and so at that time it may have made political sense to shove as many debts as possible off the government balance sheet. Later maybe it would have been realised that the euro entry criteria were not to be taken that seriously, after all the Greeks were allowed to blag their way into it.

    • R.T.G.
      Posted January 20, 2018 at 6:10 pm | Permalink

      “Later maybe it would have been realised that the euro entry criteria were not to be taken that seriously…”

      Deceitful and usurious behaviour – still lurking in the arsenal of knavish tricks to be deployed against credulous political leaders?

  11. Lifelogic
    Posted January 19, 2018 at 8:51 am | Permalink

    Well perhaps we should ask should the state sector be involved in delivering public services at all? Perhaps when they have shown they can deliver anything efficiently. But what do they actually deliver efficiently now? Very little indeed – parking ticket and motoring fines perhaps, red tape and damaging pointless regulations. huge fiscal complexity …..

    The NHS, roads, defence procurement, the HMRC, the bonkers renewable energy and climate agenda, the rubbish collections, the planning system, the education system, the criminal justice system, border control …… not only is it very inefficient it is invariably hugely misdirected. A sledge hammer to (usually miss) a nut. While spending nearly 50% of GDP on it. A benefit system that encourages so many not to work or even learn to work.

    The state sector cannot even procure services efficiently from the private sector, let alone deliver them themselves without the private sector to do the work.

    It is not that people in the state sector are not capable of delivering but the system in the state sector never gives them an incentive to try. Anyone who tries to make the state sector more efficient will be consider a trouble maker to the staffs comfort and is sidelined. Not their money so they care not what they spend not what value they deliver so long as they are paid and pensioned. They are as happy blocking the roads or building new ones, shutting down coal and gas electricity production or opening it up. What ever the daft fashions of the foolish politicians of the day.

    There is no invisible hand of the market to guide them and cull the activity that need to be culled. They are guided mainly by scientifically and economically illiterate politicians usually driven by fashion, envy, childish emotion or bonkers religions.

    Thank goodness just over 50% of the economy is still in the private sector!

    • Lifelogic
      Posted January 19, 2018 at 11:14 am | Permalink

      Put another way do you want to control the services you receive by paying for them yourself as and when you choose to use them. This while not using the poor suppliers who improve or just go out of business. Or do you want the government to take nearly all your money off you and supply you with things as they see fit, when they see fit and if they see fit. Would you like to choose and pay for your own health care or education with tax or voucher returned to you or have the government decide what you can have?

      In the later case your only control is through politicians who often lie to get elected and rarely do what they promise anyway. Even if they are trying to do the right thing they have to do it through civil servants (who often also have little interest in doing the right thing). The politicians usually far too distant from the coal face to have a clue what is going on. As we saw when a minister said everyone thinks “everyone thinks auto enrollment is a great success” or one who thinks that the apprenticeship tax is just great.

      The invisible hand is millions of times more efficient than the second state know best route. How can anyone think otherwise you just have to open you eyes.

      There is also the vast cost of taxing people, then distributing it back to provide the service. Perhaps as much as 70% of the money raised is totally wasted just in that admin process. More is wasted in not providing what is actually needed at all but something else not needed or actually harmful.

  12. Bert Young
    Posted January 19, 2018 at 9:01 am | Permalink

    Decisions reached by politicians often lack business experience ; there are too many lawyers who delight in discussing minutiae and who fail to understand practical consequences . It is one of the reasons the public sector is so expensive . The private sector is not perfect but it is exposed to competition and it is answerable to shareholders and relies heavily on commercial bankers . On balance I support PFI for these reasons .

    Carillion is an example of a double edged sword where the size and diversity of its activities was far too wide for central management to keep a grip of . The Civil Service were no match for this sort of supervision and should never have played a part in liaison – a confusion was inevitable and the tax payer , one way or another , is now exposed .

  13. Epikouros
    Posted January 19, 2018 at 9:07 am | Permalink

    We should not be having this debate on whether the private sector should be involved in providing for the public sector or not. For a start the private sector with or without PFI builds hospitals, schools etc., as the public sector is not yet at least involved in the construction industry or many other industries that provide for the public sector come to that(although when Corbyn becomes prime minister that will no doubt change) so in some capacity it always is providing for the public sector.

    No the debate should be should there even be a public sector and would it not be better that all provision of services current carried out by the public sector be carried out by the private sector even if funded by the government(taxpayer). Although a debate over funding is also needed but that is for another time. For me the public sector should not exist and space here does not allow me to give the reasons why as there are so many but I am sure that reasonable people already know most of them and would agree with me. It is the misguided and illinformed that would not.

  14. Nig l
    Posted January 19, 2018 at 9:08 am | Permalink

    It would be interesting to know what Due Diligence was done on Carillon. I suspect not much or the Civil Servants tasked to do it, we’re not experienced enough. Profits warnings and the over gearing should have been enough to ring the alarm bells.

  15. Denis Cooper
    Posted January 19, 2018 at 9:10 am | Permalink

    This is not current, it was a warning issued in January 2006, twelve years ago, and even that was by no means the earliest of the warnings about PFI:

    https://www.theguardian.com/politics/2006/jan/26/publicservices.health

    “The exorbitant cost of PFI is now being cruelly exposed”

    But again it made no mention of the Maastricht Treaty and the Stability and Growth Pact and the 3% limit on the government’s deficit; maybe that was not so surprising given that the Guardian had the hots for us to join the euro.

    I did a quick google and this came up from the IFS in 2001, updated in 2005:

    https://www.ifs.org.uk/wps/bn161.pdf

    “THE GOVERNMENT’S FISCAL RULES”

    “We compare the UK’s fiscal rules to the system used by countries that have adopted the
    Euro, and discuss briefly the UK’s present and potential future obligations under the Eurozone’s ‘Stability and Growth Pact’.”

    “3. The Stability and Growth Pact”

    “As a signatory of the Treaty on European Union, the UK is required to ensure that its
    fiscal policy meets the terms of the Stability and Growth Pact. Under its original 1997
    specification, signatory countries must set a medium-term budgetary objective of ‘close
    to balance or surplus’. This implied either higher taxes or lower public spending than
    required by the golden rule since it prohibited the government from borrowing to
    invest. Also, general government gross debt should be below 60% of national income
    and deficits should be below 3% of national income … at present the limit on general government gross debt is not constraining to the UK; on this measure debt currently stands at just over 40% of national income. However, for the second year running the UK exceeded the 3% limit on the deficit in 2004 and there is a strong possibility that this will occur again in 2005 …”

    The Remain side would have us forget all this; they would have us forget that some of those who are now most actively Remoaning fought hard to get us into the euro.

  16. Bob
    Posted January 19, 2018 at 9:11 am | Permalink

    The Torygraph reports that President Trump has no time to meet Theresa May at the next week’s World Economic Forum in Davos. although he does have a meeting scheduled with the French President.

    Is anyone surprised?

    • Chris
      Posted January 19, 2018 at 10:12 pm | Permalink

      No, not at all, and May deserves it.

  17. alan jutson
    Posted January 19, 2018 at 9:12 am | Permalink

    Afraid no Government has a very good record on purchasing, or running anything efficiently in a cost effective manner..

    Cost over runs, delays, ever changing specifications during build, regulations, tax breaks or increases.

    More huge financial failures to follow, Hinckley Point, HS2, Swansea lagoon, ships, aircraft, railways.

    Present chaos, NHS, Local Authorities, Schools, Defence requirement, Benefit system, even Brexit.

    Past failures, too many to list.

    Not suggesting its easy to run any of the above, but when you are trying to organise anything you should start of with a tight remit, of specification of work standards, performance and costs, with large penalties for failure or delay.
    The fact that in more recent years Government have been less than honest with the cost, because they wish to meet so called targets they have used complicated methods to try and hide the facts and PFI was one of those schemes.

    Yes of course private business should be used when it is cost effective and efficient to do so, but the remit needs to be very sound in the first place and the results should be better than the use of State provision.

  18. acorn
    Posted January 19, 2018 at 9:30 am | Permalink

    The John Major government introduced PFI to the UK, JR was there at the time, so he can tell the story. It was an early example of “off balance sheet financing” in the social side of the economy; but, very common in the Banking side of the economy.

    No body can finance a private sector project, to supply social sector required goods and services, cheaper than a currency issuing government. Government can just “deficit spend” its “units of account” to the point where it uses up the available resources in the private sector (the inflation point).

    The government does not need any accounting tricks to disguise its spending; just to make some irrelevant aggregate look good for the voters; such as budget deficit to GDP ratio. A currency issuing sovereign government, never runs out of its own money. It runs into inflation if it spends more of it that the private sector has the capacity to deliver goods and services. And; that goes for private bank credit creation as well.

    • Denis Cooper
      Posted January 20, 2018 at 9:56 am | Permalink

      I agree that a currency issuing sovereign government can never run out of whatever currency it issues, at least until it runs out of paper and/or ink if it wants to issue real notes as well as virtual money. That is, unless it has put itself under some external constraints on the volume of its currency it can issue, or even more foolishly it has unnecessarily agreed to abolish its own currency. Hence the Greeks suffered more than the British even though the financial difficulties of their national governments were fairly similar.

  19. Bob
    Posted January 19, 2018 at 9:32 am | Permalink

    R4 this morning moaning about the cost of the new British aircraft carriers at £6bn.
    These ships should have a service life of 40 to 50 years if they are properly maintained, so the annual depreciation looks like about £133m the pair.

    Compare that to the annual squandering of £13bn in foreign aid (something the BBC would never do). The 13bn should be diverted to rebuilding our armed forces, which can be tasked to humanitarian assistance if needed.

  20. Narrow shoulders
    Posted January 19, 2018 at 9:33 am | Permalink

    I think it is worth asking why a private company can deliver cheaper than the public sector?

    Is it purely economies of scale? Rather than looking at ways to involve private enterprise could the public sector not just become more efficient? With the number of employees it has I am sure it has similar economies of scale it could tap.

    To be clear I am not knocking the rationale as laid out above and change is difficult and takes time but just looking to the private sector to reduce margins may not be the ideal way forward.

    • Mark B
      Posted January 20, 2018 at 6:44 am | Permalink

      Motivation !

      A private company can go bust, a government cannot as it can just prints more money.

  21. BOF
    Posted January 19, 2018 at 9:43 am | Permalink

    The role of govern!ent should to provide the regulatory framework and do the bare minimum. Also ensure that there is thewidest variety of business in the private sector to ensure healthy competition which in turn leads to the greatest advancement in all areas. Government should only be involved where absolutely essential.

    There will always be failures in business but this way it is always manageable and should not require government intervention.

    Smaller government, lower tax and less regulation. Not difficult really, except for socialists.

  22. Ed Mahony
    Posted January 19, 2018 at 9:51 am | Permalink

    Perhaps the answer to this question can best be found by politicians and civil servants looking at Sweden, Denmark, Norway and Finland who have a relatively high public sector (higher than us) and relatively high GDP per capita (higher than us).

    • Ed Mahony
      Posted January 19, 2018 at 1:20 pm | Permalink

      And looking around the world in general about private sector be involved in providing public services – and when it works and when it doesn’t.

      Let’s focus on CASE STUDIES (evidence) to help us guide us on this, just as businesses so often depend on case studies. Case studies aren’t always relevant but are certainly useful overall. So, instead of theorising about this subject, it would be great if people used objective facts + figures to support their arguments.

  23. A.Sedgwick
    Posted January 19, 2018 at 9:52 am | Permalink

    PFIs are always at risk of putting the taxpayers at risk ultimately either through default or excessive charges, from which the NHS is now suffering. As you rightly highlight Governments can borrow cheaper and easier. There are two massive and increasing disincentives for Government to do the jobs: trade unions and the cost of public sector pensions, the latter being the ultimate Ponzi scheme. The furore over local government not being able to finance enough care home beds would not exist if 25% of Council tax receipts was not swallowed up by their pension deficits. We have witnessed in the private sector the business threatening burden and end of final salary schemes. More public sectors workers = more public sector pension deficits, which one day have to be accounted for.

  24. Iain Gill
    Posted January 19, 2018 at 9:54 am | Permalink

    Its not so much who owns the service provider, as whether the end consumer has any buying power and real and continual ability to go elsewhere for the service.

    The thing that makes the free market economy powerful is the millions of tiny buying decisions made by each individual consumer, deciding to buy X instead of Y, or from seller A instead of B, at location Q instead of W, and so on. These decisions when added together are a big force for change on all the providers, and its constant and ongoing.

    You see the only mechanisms for change, optimisation, and innovation without consumer choice are top down “command and control”, or some kind of complaints and feedback system, neither of which work anywhere near as well as individual end consumers simply being able to take their business elsewhere.

    That is at the heart of the problem. And of course that choice ripples up, if the team directly serving the consumer have choice of their service providers and so on up the chain.

    That’s what needs fixing. Its not so much a public v private battle, as an empowered free citizenry against top down command and control.

  25. agricola
    Posted January 19, 2018 at 9:55 am | Permalink

    The biggest crisis in the UK at the moment is the winter work load on the NHS. Rather than producing a number of glib answers I would ask the following questions.

    1. Is the crisis largely flu based, I suspect it might be.

    2.Is the October 2017 flu vaccine effective against current strains of flu. Knowing that it is a constant battle against a mutating virus I would be happy if it was half effective.

    3.Are all medical staff in receipt of the injection in October 2017. Is it compulsory.

    4. At present the elderly, the vulnerable, plus anyone who wishes to pay a chemist can have the anti flu injection usually around October time. What is the take up rate among those who can get it for nothing.

    5.In view of the front line cost to the NHS of emergency admissions that have contracted the virus, and the delaying effect it has on all their routine work, has anyone yet worked out the overall cost in financial terms.

    6. Would it not make financial sense to vaccinate the whole population in October/November of each year to avoid the crisis before it occurs.

    A balance sheet of costs in all respects might give us some answers that avoid future crises.

    • Miss Brandreth-Jones
      Posted January 20, 2018 at 4:58 pm | Permalink

      The elderly are entitled to flu vaccinations on the NHS , but many refuse. We cannot force people against their wishes to take it up.Next season however there will be a more effective quadruvalent vaccine available for those over 75 years. The trivalent vaccine is limited in its effectiveness for the older person.

      There are some nasty side effects for some who have had the vaccination and it puts them off returning the next year.We all know that you cannot get flu from the vaccination as the virion has been split and therefore cannot reproduce, however because it is a foreign protein in the body , the immune system gets to work and produces symptoms similar to an attack of flu whilst in the process of making antibodies.These can resemble flu. This is not a coincidence as some would make you believe.

      Most staff members of the NHS opt for the vaccine , This year I had an early and nasty bout of flu , but we are always unsure whether the strain which affected us was a serious type or a less virulent strain. Nevertheless less I had a vaccination.

      • Stred
        Posted January 21, 2018 at 7:17 pm | Permalink

        My wife was able to have a quadruple vaccine last week from her GP, as they ordered stock in advance. They refused it to myself despite being in the over 65s at risk group, as I was not a patient. My GP and most others have taken NHS advice and stock only triple. All the pharmacies we have phoned only have triple. One advised me to offer cash to the wife’s GP but this was not successful. Only quad works for over 65s, so I am not leaving home or going to crowded places. Millions of people are in the same boat.

        • Stred
          Posted January 21, 2018 at 7:20 pm | Permalink

          The triple is £2 cheaper so the NHS saved a lot of money on the jabs but will spend more on ambulances.

  26. a-tracy
    Posted January 19, 2018 at 10:15 am | Permalink

    It was the Labour party that privatised dentistry for goodness sakes and look at the resultant mess that is now causing. New, New Labour can’t just keep blaming Blair’s Labour they sat compliantly in Blair’s government earning their money for years, just remind people how long Corbyn’s crew have been active representatives of the party. Blair’s Labour changed the GP contract making them no longer responsible for out of hours or weekend care cover for a very little payment drop!! What on earth did they expect to happen long-term all of this was predicted by many people who objected to the proposals and said so at the time warning on the massive extra pressures on Paramedics and A&E and just moving the problems of care to a different set of workers. Soon we won’t have GPs as we know it, we’ll be facing computer screens and waiting to be referred they are already getting us used to this by just not giving anyone antibiotics resulting in more cases eventually going to hospital, I know people who have had flu/colds for three months on and off now, just passing the bugs around until an elderly or seriously sick member of their family catch it. The NHS is the organisation we should hold responsible for our care, not the government they just tell the service provider how much the clients are prepared to pay in taxes. The NHS know how much they have to spend, what other business gets to blame the customer, the taxpayers – the people paying for the services if the service is out of control and treating people who don’t pay in and haven’t paid a penny in, why are we being restricted from services when we’re paying up? If we couldn’t provide sufficient training places for nurses in the UK why didn’t we encourage nurses that wanted training on to Erasmus type transfers and get other European Countries to train them – it is because it’s only a one way street and languages are so poorly taught in our Country students at 18 can’t even pass the language tests to take up training places elsewhere. The only thing is becoming a joke, we have more than enough people living in the UK to train to be healthcare providers, if we need to import trainers for a couple of years then so be it but to keep make excuses for decades of Winter Crisis in the NHS is just beyond acceptable and Hunt needs to finally get a GRIP.

    Why was Carillon allowed to buy up many of its competitors, where was the monopoly commission controllers, why didn’t the government suggest clean breakups and sales of parts of their business when they learnt Carillon started to fall down and the bells of alarm were ringing?

  27. majorfrustration
    Posted January 19, 2018 at 10:23 am | Permalink

    Might well have kept the capital costs off the Government’s balance sheet – it also kept the Unions off the balance sheet.

  28. Denis Cooper
    Posted January 19, 2018 at 10:36 am | Permalink

    Off-topic, it was reported that President Macron mooted some conditions for the UK to continue to have access to the EU Single Market for services, one of which was continued payments into the EU budget.

    As far as I can see nobody has yet responded by saying that by the same token the French should have to pay a fee for easy access to the UK wine market, and the Germans should have to pay a fee for easy access to our car market, etc, etc, so when we add it all up the EU should be paying us for easy access to the UK market in general.

    Why not? What has gone wrong in this bloody country that nobody will stand up for our national interests and it is taken for granted that we must bend the knee to the mighty EU, and even if their proposal is patently unreasonable we must just accept it and meekly sign the instrument of unconditional surrender on the dotted line?

    What is Theresa May up to, whose side is she really on, and I now have to ask the same question about David Davis as well; and why do we have a Department for Exiting the European Union which obstinately refuses to defend the official policy against constant media attack and is apparently quite content to see public opinion falsely manipulated towards reversal of the referendum result during the year that the Lords will be allowed to hold up our withdrawal, because the simple legislative action needed to clip their wings was not initiated when they first started to talk about stopping Brexit?

    And why does the government still persist in talking up the importance of special access to the EU Single Market when on the admission of the EU Commission itself the overall economic effects of their precious EU Single Market have been marginal, at the 1% or 2% of GDP level, as I keep trying to demonstrate on this blog, and quite possibly negative rather than positive? Is that because for decades the Tory party line was always to grossly exaggerate the supposed economic benefits of EU membership, and now Tory ministers cannot get out of that habit and admit that this line was always untrue?

    • Denis Cooper
      Posted January 19, 2018 at 11:23 am | Permalink

      Theresa May speaking yesterday, at 3 minutes in here:

      https://www.youtube.com/watch?v=iPnBz_XAhks&t=138s

      “We recognise that as we leave the EU we will no longer be full members of the single market.”

      So now her story is that “we will no longer be FULL members of the single market” after we leave the EU. That is to say, we will still have a kind of membership of the single market after we leave the EU, but not FULL membership.

      Just as according to Crispin Blunt yesterday:

      https://www.express.co.uk/news/uk/906658/Brexit-news-latest-update-today-UK-London-EU-Emmanuel-Macron-European-Union-video

      we will not be a FULL member of the EU, so presumably we will only be some kind of part or associate member.

      Little more needs to be said. It was not enough to get and win a referendum, we are now being betrayed by the government and it is time to remobilise support from all those who are sincere in their determination to leave the EU. Perhaps you would care to help give us a lead on this, JR, now that the need is clear.

      • Chris
        Posted January 19, 2018 at 10:11 pm | Permalink

        That is something I had noticed in her statement today. Weasel words by her, barely masking her betrayal, in my view. Why are the Brexiter MPs standing for this?

        • Denis Cooper
          Posted January 20, 2018 at 10:01 am | Permalink

          That is a good question. I understand that she is due to make another keynote speech in February and I hope the patriotic minority among the Tory MPs will make sure that she is going to say the right things and not start backsliding.

      • Mark B
        Posted January 20, 2018 at 6:56 am | Permalink

        I did try and tell you 😐

        EU-Lite is the plan. We will apply CU and SM rates and rules and, we will track the EURO on as near 1:1 basis as we can.

        In Europe but not a part of Europe. ie EU 😉

        • Denis Cooper
          Posted January 20, 2018 at 10:11 am | Permalink

          As I have mentioned before Theresa May has been my MP for the past two decades, and while disagreeing with her about some matters and above all about the EU I had developed some respect for her personal integrity. So when she became Prime Minister I was prepared to give her the benefit of the doubt, even though before the referendum she had been a (rather lukewarm) Remain supporter. But I’m afraid I’ve now reached the point where I can no longer trust her.

          • Mark B
            Posted January 21, 2018 at 8:55 pm | Permalink

            I have never mentioned this before, but TM use to be the Conservative Leader of my Local Council, so my knowledge of her predates yours. So I was NEVER going to give her the benefit of the doubt.

        • rose
          Posted January 20, 2018 at 12:20 pm | Permalink

          “No longer full members of the single market” goes with her “some control of free movement” which she first came out with a very long time ago. I can’t recall her even bothering to cobble together a similar phrase about our fishing grounds.

  29. Duncan
    Posted January 19, 2018 at 10:50 am | Permalink

    The real question is should politicians and unions be allowed to abuse the taxpayer to construct an entity that serves their own interests and the interests of their respective parties?

    The abolish of the opt-in system in the public sector is well overdue. One of my family members resents his union subs being used to finance the political activities of Marxist Labour and its associated hard left allies namely Momentum and other Marxist pressure groups

    PFI isn’t the problem. Politicians and the State ARE THE PROBLEM

    • Ed Mahony
      Posted January 19, 2018 at 7:16 pm | Permalink

      ‘the State’

      – What do you mean by ‘state’ exactly?

      If you mean something socialist, i totally agree.
      If you mean something to do with patriotism, i totally disagree.
      If we’re not a state in the good or bad sense, then we’re just a collection of individuals working for our individual agendas only. Most businesses can’t work like that. Nor can the army. Nor hospitals. In fact, no human organisation can. In fact, you can’t even have an organisation.

      Lastly, don’t forget, a lot of people are still incentivised by work ethic and a sense of public duty which is all part of job satisfaction (there’s lot of evidence in business to demonstrate this). Some industries more than others, including the public sector.

      • Mark B
        Posted January 20, 2018 at 7:05 am | Permalink

        The ‘State’ as in its institutions.

        There comes a point when the ‘State’ no longer is the servant of the people but its master. We have passed the point at which we are in the latter.

        The ‘State’ should only exist to serve us, but we are now being used by the ‘State’ to serve it. This being done through higher taxes to furnish their ever more grandious schemes and benefits.

        • Ed Mahony
          Posted January 20, 2018 at 10:22 am | Permalink

          Is taxation in the UK really that much higher than most countries like us? Is the public sector that much bigger than in other countries like us – certainly lower than in the Scandinavian countries that have higher GDP per capita than us (and Japan / S Korea much lower public sector than us and lower GDP per capita than us).

          For me, the real problem is a drop in sense of work ethic, public duty and patriotism. If we could address these more, then there’d be lower taxation (because people wouldn’t depend on the state so much) plus people would be a lot happier in general.

          Regards

          • Mark B
            Posted January 21, 2018 at 8:58 pm | Permalink

            Do we really need a HS2 when our roads are in such disrepair ?

  30. ale bro
    Posted January 19, 2018 at 10:58 am | Permalink

    PFI was implemented in slightly different forms in different sectors. I was personally involved in many projects, both on the public and private side, so I have seen many different contract forms.

    In the education sector, for example, authorities signed up to make annual payments that were 50% fixed and 50% subject to inflation (RPI). This means that the payments decline in real terms every year, making the project more and more affordable.

    However, the health sector took a very different approach. To try and squeeze the first annual payment into existing budgets, i.e. by making it as small as possible, health projects all have their annual payments 100% indexed at RPI.

    This trick works initially, but as the years have rolled by, the payments have not gotten cheaper in real terms, unlike in the education sector which is experiencing real terms decline in payment obligations.

    From a financing perspective, full indexation is undesirable as the indexation profile does not really match a project’s cost base, which is predominantly the repayment of capital. To mitigate inflation risk, PFI companies had to hedge inflation exposure by buying cover in the market (either with index linked bonds or RPI swaps).

    The Department of Health could have avoided many of the budgetary problems that PFIs are causing by adopting a model much closer to education PFIs.

    I would also add that the budgetary approach taken by government encouraged the wasteful use of resources. This is because if a budget is unused in any year, then it will be cut in the following year. This is a huge disincentive to saving money.

    I have seen the impact of this first hand, where PCTs have requested additional features in capital projects not out of the need for new facilities, but to preserve their operating budget going forwards. In the short term this delivered new facilities, but of course operating budgets are not guaranteed to increase with RPI, so these projects are now stretching the budgets of hospitals and PCTs.

    I’ve never seen a cogent explanation of why PFI contracting in the NHS preferred a model that was guaranteed to become unaffordable. All attempts I made at the time to move projects to a better long term pricing model were quickly shut down.

  31. Rien Huizer
    Posted January 19, 2018 at 11:09 am | Permalink

    Mr Redwood, you are perfectly right. You could have gone one step further to suggest that public/private partnership are also a great source of corruption for one’s “mates” as they would say in Australia. Public provision should be funded at the risk free rate at which the government can borrow. Benefiting from private sector efficiencies (generally lower seniority payments, less lavish pensions would tend to make private sector labour cheaper) should be possible by a combination of outsourcing the actual running of facilities (of course with benchmarking, government controls/audits and gvt ownership of the facilities/property involved. However that is typically not what investors in PPI want.

    Good government means that public provision is fully reflected on the State’s accounts, costed in accordance with private sector benchmarks and structured efficiently (ie no pork barrels). Try to do that and win the subsequent election with all those disappointed mates badmouthing you! It can be done but vote buying, mateship etc are easier.

  32. alan jutson
    Posted January 19, 2018 at 11:10 am | Permalink

    Further to yesterday’s post on Macron and illegal immigrants.

    I see it is being reported that Mrs May has now Pledged the £45,000,000 requested by Mr Macron.

    Given that France has completely open borders with all neighbouring Countries in Europe and so has chosen not to screen anyone who visits or travels through their Country, other than UK citizens when travelling from the UK. Why should we cough up anything at all.

    Many people have broken into the Ports, Tunnel, lorries, coaches and cars, but they are simply removed, dumped outside, and allowed to try again, and again.

    Many people block roads with obstructions, assault drivers, damage vehicles, soil the goods they are carrying, but again never appear to be questioned, prosecuted or even legal status investigated and recorded.

    If perhaps these law breakers were being prosecuted, recorded or returned to their home Country, then I could perhaps understand some sort of financial help, but what has our Prime Minister actually gained from all of this taxpayer generosity.

    I really would like to know.

  33. Rien Huizer
    Posted January 19, 2018 at 11:23 am | Permalink

    There is a very instructive case of private provision in the US. In 2009, the City of Chicago raised over one billion USD by selling a 75 year concession for all of its parking meters. The city had severe financioal problems. Initially that led to very loud complaints and ridicule. because rates went up and free parking times were reduced. However, the City managers had done this better than could have been expected from their reputation and now this is an excellent example of “good government”: accounts of the private vehicle are posted on the City website, rates are capped (and audited) at the average of a number of comparable cities and set by the City Council, all meters have been upgraded with state of the art technology, and profits are reasonable while the city made hardly any money from these meters under the “public” system. The losers were the thousands of employees in the system and all those people who voted for keeping parking rates low.. Winners were the taxpayers and ultimately, consumers. Only the transition was painful.

  34. bigneil
    Posted January 19, 2018 at 11:31 am | Permalink

    We were quickly? told that Carillion bosses would not be receiving severance payments or bonuses ( will they just be called something else? ) I suspect those bosses will already have enough put away to ensure their retirement is VERY comfortable indeed.

    Also, why is it we have no money to fund hospitals etc, so use PFI, while we have paid money to the EU for years and will be doing so for years – or decades – to come. Also we have to fund the ( never-ending ) cost of all the ( never-ending ) new arrivals TM has signed us up for, to come, breed, demand THEIR culture over ours and do/contribute NOTHING to our country and culture. Keep importing them and the more Britain and the British die. I hope you all feel the reward you must be getting for it is worth the extermination of a nation.

    • Fedupsoutherner
      Posted January 20, 2018 at 7:40 am | Permalink

      Also millions found just like that for Macron and border control but nothing for social care which would free hospital beds.

  35. bigneil
    Posted January 19, 2018 at 11:57 am | Permalink

    Interesting to see that from the 4 items you put up yesterday John, one got more than the other 3 put together. I think you have a winner as regards what people are most concerned about.

  36. English Pensioner
    Posted January 19, 2018 at 12:33 pm | Permalink

    If the state, whether it is central government or local government, wishes to put contracts with private companies it is essential that they have sufficient qualified staff of their own to write the specification and oversee the work. In many cases they clearly do not have such staff and frequently employ consultants to act on their behalf, who are usually paid according to the contract value and thus have every incentive to “guild the lily”. There is also a tendency to go to the largest contractors, who can do everything, rather than seek out smaller, and often cheaper companies with particular expertise.

    As a retired engineer who was involved in maintenance work, it is quite clear to me that much of the work carried out by contractors on behalf of the council is not properly inspected by qualified staff; for example pot-holes are poorly repaired and frequently need re-repairing within less than a year.

    Both local and national government need to employ adequate numbers of professionally qualified staff to not only assess the proposed contractor’s capabilities but also oversee the work as it is carried out. Only that way will they ensure that jobs are properly done and the taxpayer gets value for money.

  37. Bob
    Posted January 19, 2018 at 2:26 pm | Permalink

    Mr Redwood,
    Did you know that one of the SAS soldiers that freed the hostages in the Iranian Embassy siege has been refused housing by his local council, while the terrorist that survived the incident is living comfortable on the state?

    • Bob
      Posted January 19, 2018 at 2:30 pm | Permalink

      why doesn’t the govt prioritise ex service personnel over terrorists?

      “Terrorist is paid British benefits and gets a council house – while SAS soldiers are forced to sell their medals

      http://www.dailymail.co.uk/news/article-5285461/Iranian-Embassy-terrorist-continues-enjoy-benefits.html

    • alan jutson
      Posted January 19, 2018 at 11:51 pm | Permalink

      Bob

      Agreed

      Yes quite shameful the way we treat our armed forces personal who are in desperate need.

      Likewise shameful that we will not allow translators who helped us in Afghanistan to be protected here, but instead allow their families to be at risk of harm by those who were our enemy, whilst we are now going to prioritise and let in chosen illegal immigrants here, just because Macron has asked us to.

      Double standards which absolutely stink, the Government should be ashamed of themselves..

      • rose
        Posted January 20, 2018 at 12:26 pm | Permalink

        Surely one of the main reasons the army is shortof 5,000 recruits is that we prosecute the soldiers afterwards, even into their old age. But not the terrorists.

  38. mancunius
    Posted January 19, 2018 at 2:55 pm | Permalink

    It’s absolutely true that Labour when in government (and Labour councils everywhere) were and are heavily reliant on PFI. Recently however, eg in the Labour-held borough of Haringey, local party Corbynistas attempted to deselect all the Labour councillors who supported a large public building and renovation PFI of council homes. Only the council leader managed to survive the attempt – a horde of Labour councillors have been dispatched or bullied into ‘retiring’ by the Momentum faction as if in a pre-war Stalinist purge.
    And that is just one egregious example – there are many others in London and elsewhere.

    There is no point in local government when an army of net takers are all so easily persuaded into voting, year in year out, for the party that encourages their dependency.

  39. Anonymous
    Posted January 19, 2018 at 4:31 pm | Permalink

    Yes. The private sector should be used in running public services but it must be tightly regulated.

    Anything that is too essential to fail makes private sector participants behave less like they are in the private sector. Any failure will be underwritten by the government.

    • Ed Mahony
      Posted January 19, 2018 at 7:21 pm | Permalink

      ‘Anything that is too essential to fail makes private sector participants behave less like they are in the private sector’

      – But greed can also undermine the success of the private sector. The private sector is best served by people who have a sense of work ethic (as they often do from my own experience).

      – But just as you have work ethic in the private sector (from my personal experience), so you have it in the public sector as well (never worked in the public sector, but the public sector aren’t aliens from another planet). But public sector works well for certain industries (and/or mixed with private sector) as well as providing jobs for certain types of people with certain types of goals (what is important however is that the public sector is not over-paid in relation to the private sector).

      • Anonymous
        Posted January 20, 2018 at 10:59 am | Permalink

        SAS troopers are in the public sector.

  40. Juiliet
    Posted January 19, 2018 at 4:59 pm | Permalink

    Yes

  41. Chris
    Posted January 19, 2018 at 7:09 pm | Permalink

    A simple question to you and your colleagues, Mr Redwood: if this reports is true, how can you possibly support this woman? I believe you do not deserve to be in government, if it’s true.
    http://www.telegraph.co.uk/politics/2018/01/19/theresa-may-hints-would-now-vote-stay-eu-tells-french-proud/

    • Chris
      Posted January 19, 2018 at 10:21 pm | Permalink

      Now backed up by David Lidington, apparently:

      http://www.telegraph.co.uk/politics/2018/01/19/britain-could-one-day-join-reformed-eu-hints-theresa-mays-de/
      Britain could one day join a reformed EU, hints Theresa May’s de facto deputy David Lidington

      What on earth is going on?

      • Denis Cooper
        Posted January 20, 2018 at 10:13 am | Permalink

        Backsliding and betrayal is what is going on.

      • Mark B
        Posted January 21, 2018 at 9:01 pm | Permalink

        We are being set up for EU-Lite. There will be another Treaty sometime in the next few years and the EU will want to tidy things up a bit. So out will go the EEA and EFTA, plus Switzerland’s agreements, and in will come EU Associate Membership.

  42. Turboterrier.
    Posted January 19, 2018 at 7:33 pm | Permalink

    Labour’s attack on all of this is absurd, given the big role the last Labour government played in extending PFI and contracting out, and given the extensive use Labour Councils rightly make of these techniques today.

    Never mind Labour. Is it not very strange that while every man and his dog is blaming the government for not reacting to the alarm bells of the profit warnings as they were issued? I do not remember a word or concern from the unions being reported on the announcement of the profit warnings , which in reality was going to hit their members the hardest. Perhaps they don’t listen to the news or read the papers. Kippers all of them (two faced and gutless)

    • Derek Henry
      Posted January 19, 2018 at 11:56 pm | Permalink

      New Labour wasn’t labour now was it ??

      New Labour was a neoliberal party. Which is why it lost Scotland.

      • Mark B
        Posted January 21, 2018 at 9:03 pm | Permalink

        It lost Scotland because it thought the Tories were finished and they could rules as they pleased. Clearly didn’t see the SNP coming up from behind.

  43. Raymond
    Posted January 19, 2018 at 8:01 pm | Permalink

    My experience in both private and public sector employment is that most people, in both sectors, are trying to do a good job. The context in the private sector is the need to make a profit. The context in the public sector is broadly, subject to ones political masters, the social good. Large scale public projects are taken on by the private sector to make a profit, which may be achieved by efficient delivery of the projects; but may also be by cutting corners, exploitation of employees and so on. On the whole I think it better that large scale public projects (and natural monopolies) are run, managed or overseen by the public sector, though not precluding private sector involvement in elements.

  44. Derek Henry
    Posted January 19, 2018 at 11:50 pm | Permalink

    The average citizen has learned the hard way how deeply flawed neoliberalism is. They have endured elevated levels of labour underutilisation, flat wages growth, declining real wages, increased precariousness of their employment, deteriorating public services in areas that really matter – water, power, transport, health, education – inflating charges for the same, bank collapses, and more.

    They have come to ‘know’ through experience what a dud neoliberalism is.

    They now favour a return of a larger public sector taking renewed control of the essential utilities. They also want labour markets reregulated to eliminate obscenities like ‘zero hour contracts’.

    A government elected within that milieu will have a very strong mandate to reverse many of these neoliberal ravages.

    It doesn’t take too much imagination to then realise that the public will be receptive to new economic ideas, which expose the fiscal myths that were used to justify a lot of these flunky privatisations in the first place.

    For example, such a government could immediately repeal the – Budget Responsibility and National Audit Act 2011 – which imposes unnecessary fiscal rules on the government.

    In its place it should introduce a new fiscal charter – which might be called “The Full Employment, Social Equity, and Environmental Sustainability Act” – and would require it to use fiscal policy to advance those essential aspects of well-being.

    In doing so it would eschew any notion of ‘fiscal deficit targets’ or ‘debt targets’ but reeducate the public into understanding that the fiscal outcome was not a sensible policy target and the fiscal outcome would be whatever was required to satisfy the objectives of the new ‘Act’.

    Ideally, such a government would introduce new rules for the Bank of England, which would require it to take instructions from the Government on its spending priorities and facilitate the same with appropriate credits to relevant bank accounts.

    Such a government would close the – UK Debt Management Office – as it would become redundant in this new era of progressive government and policy making.

    Owners of previously privatised companies would be compensated in return for the resumption of public ownership, but the value of the companies would be discounted by the net present value of the public subsidies that the companies had received over the course of its operations.

    In other words, this era would reverse the neoliberal rule where returns are privatised and losses socialised.

    Once you realise all that is possible, then these elaborate manoeuvres to keep these essential services in the hands of private, profit-seeking corporations – specially constituted or otherwise – look pretty lame and just apologist.

  45. rose
    Posted January 20, 2018 at 12:29 pm | Permalink

    “Private shareholders have ended up subsidising the state as a result by supplying services and facilities below cost.”

    The opposition get away with their condemnation of profit over what they call public service ethos, but it seemed to me that the problem was not enough profit, not enough money in the bank.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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