Labour accelerates privatisation

Labour’s dogmatic pursuit of Public-Private Partnerships (PPP) and Private Finance Initiative (PFI) is part and parcel of its defence of British imperialist interests. At stake is the ability of British multinationals to take part in the global auction of public sector services which is heralded by the proposed neo-liberal General Agreement on Trade in Services (Gats). Since the general election, Labour has escalated its privatisation drive. PFI has become a gravy train for UK building and service monopolies, and to protect it, their representatives fill think-tanks, government committees and advisory bodies. Government under Labour has become direct government by big business: Labour and big business are now just one and the same. There is no pretence that it is anything else. Robert Clough reports.

By 1997 the Tories had exhausted most of the possibilities for the direct sale of state-owned assets. Public transport, utilities, energy and communications infrastructure had all passed into private hands, raising £123bn. True, Labour would find more to flog off – most notoriously the National Air Traffic Control system – but this would be small beer. What remains now are mainly services – health, education and local government – which are impossible to privatise if there are no guaranteed profits. This requires the state to continue to levy charges from the individual for the particular service in the form of taxation and then pass this revenue on to the private sector. Whilst Labour talks of ‘risk transfer’ to the private sector, in reality the state has retained the real risk as far as the private sector is concerned: that of getting the money out of the ‘consumer’ in the first place. The multinationals do not have to worry about whether or not they will collect payment from the ‘consumer’; the state will continue to take care of that. This was not a problem for the new owners of the gas, electricity or telecommunications industries: they could just cut off the consumer if he or she didn’t pay. With education or health this is not yet acceptable. The rub is that private capital has to make a profit out of running these services, and that requires cuts, whether in services, or in the pay of the workers providing them, or both. Universal provision is further eroded since it is services to the working class which always bear the brunt of these cuts.

When Labour first came to office in May 1997, PFI under the Tories had stalled. Following a review by Michael Bates, then head of global finance services organisation AMP, the whole process was kick-started with the establishment of a dedicated Treasury taskforce to handle the process across government. From £7bn in April 1997, the value of PFI contracts rose to over £25bn by October 2000 with a further £11.5bn in the pipeline. The first £14bn of PFI will yield the private sector a guaranteed £96bn income over a 26-year period. Current estimates are that PFI contracts could be worth £30bn per annum to the private sector, £5bn in education alone, including one in five schools. To promote it, new quangos have sprung up: the New Local Government Network (NLGN) and its equivalent for the NHS, the New Health Network (NHN). Connecting them are the Institute of Public Policy Research (IPPR) and the now part-privatised Treasury taskforce, Partnerships UK. In the past, public-private partnership used to be called corruption: now it is the norm – private companies do not have to bribe public officials to influence policy; they work openly with the enthusiastic support of these officials in deciding what service is next for sell off.

PFI and the NHS

The cost of NHS PFI contracts, most of which last for 20 to 30 years, is being measured by the number of beds that are being lost at a time when capacity is completely inadequate. The examples are legion:

• The Norfolk and Norwich hospital lost 254 beds. Its costs have risen from £90m to £229m. However, the consortium leading the project, Octagon (which includes Barclays, John Laing and Serco) now stands to make a further £70m on the contract through a refinancing deal.

• At Swindon, 540 beds will be replaced by 463. The consortium building it, The Hospital Company, is led by Carillion, better known in the past as Tarmac, which also owns GT Rail Maintenance.

• Carillion also led the consortium which built the first PFI hospital, Dartford and Gravesham. 51 beds were lost. This is also being
refinanced in a deal which will allow the consortium to pocket an extra £20m.

• 90 beds were lost with the opening of the new Cumberland Infirmary which has proved a complete disaster: suffering from power cuts in theatres; equipment failure because maintenance engineers have been sacked and waiting times that have doubled. Whilst the atrium has space for shops, there is no room for medical records or X-rays which have to be stored elsewhere, requiring a 15-minute round trip to collect them. Burst water pipes have flooded cardiology and maternity wards.

• The cost of the new Worcester Royal Infirmary soared over four years from £49m to £116m, and required the closure of Kidderminster hospital. Opposition to this scheme was the basis on which retired NHS consultant Richard Taylor trounced the sitting Labour MP for Wyre Valley at the general election.

Every £200m that is spent on PFI is being accompanied by the loss of 1,000 jobs. Overall, the first 14 PFI hospitals have only two-thirds of the beds originally planned; there are a further 54 such projects in the pipeline. Together they will net up to £3.4bn profits for the private sector over the next 30 years.

Privatising the privatisers

In 1999, the Paymaster General Sir Geoffrey Robinson asked Michael Bates, now knighted for his services to privatisation, to undertake a second review of PFI saying ‘we need to exploit all commercial potential and spare capacity in public assets’. Amongst the many recommendations were that the Treasury PFI taskforce itself be privatised, a suggestion the government immediately accepted. Thus was born Partnerships UK, which became a limited company in March 2001 when a 51% stake worth £45m was sold to a consortium which included Barclays, Jarvis, Serco, Group 4, Halifax, Abbey National and Prudential. It continues the role of the taskforce in fostering PFI and other PPP contracts; it receives income from a cut of such deals. A recent Partnerships UK publication, Public-Private Partnerships – UK Expertise for International Markets, co-written by KPMG and PricewaterhouseCooper, speaks of the need to ‘develop commercial opportunities’ internationally in public services, including health, education, transport, prisons and defence. As former Trade Minister Dick Caborn put it in relation to the Gats negotiations: ‘The UK is the world’s second largest exporter of services, totalling £65bn in 1999. It is important that world markets remain open and free from over-burdensome regulation.’ Partnerships UK is the mechanism for ensuring that British imperialism is best placed to exploit these markets as a further source of super-profits.

Partnerships in practice
The legalised corruption that accompanies the promotion of PPP/PPFI is staggering. Alongside Partnerships UK is the Institute of Public Policy Research (IPPR), misleadingly described as an independent think-tank, and the ‘networks’ NLGN and NHN. The IPPR is sponsored by the private sector; amongst its leading figures are:
• Martin Taylor, Chair of WH Smiths, better remembered when as head of Barclays he led Labour’s taskforce on welfare ‘reform’ in 1997;
• Chris Nicholson from KPMG who advises on PFI;
• Shriti Vadera, Treasury lead on the London Underground PPP;
• Claire Perry, NHN chair and former Chief Executive of Bromley Health Authority who pushed through a PFI scheme for Bromley hospital;
• Professor Gerry Stoker, NLGN Chair.

NHN is sponsored by, amongst others, Superdrug, Westminster Healthcare and the ubiquitous KPMG. The recent IPPR report on privatisation (sponsored to the tune of £200,000 by Serco, Norwich Union, and – surprise, surprise – KPMG) says ‘the operations element of a PFI hospital should not be limited to the provision of ancillary services.’ Health Secretary Alan Milburn has appointed one Paul Corrigan as his £73,000 per annum adviser on privatisation. Corrigan is the partner of Labour Chief Whip Hilary Armstrong. He also sits on the NLGN. This is funded by construction companies like Amey, Amec, and Carillion, service companies like Initial and Jarvis, and...KPMG. The IPPR report recommends that local authorities should be set ‘diversity targets’ to increase the number of services provided externally, and says that the private sector should provide both teaching and curriculum delivery in school PFI deals.

A network of greed and corruption
Meanwhile Sir Malcolm Bates has been playing a leading role in the London Tube PPP fiasco, now two years late. In 1999, he resigned as non-executive director of BICC, which is the holding company for Balfour Beatty, to become Chair of London Transport. In this capacity he announced the selection of the preferred bidders for the deep lines: Metronet, which is a consortium which includes Balfour Beatty, and Tubelines, which includes Jarvis. Meanwhile, the former £160,000 head of the Treasury PFI Taskforce, Adrian Montague, has also been distinguishing himself. In the past he had worked on the British Rail privatisation, and been criticised by the National Audit Office for being weak on private companies when he led the renegotiation of the financing of the Channel Tunnel. He is now on £30,000 for a one-day week advising Transport Minister Lord MacDonald on the Tube PPP scheme. He also advises Société Générale, which has many PFI interests, and which is the biggest shareholder in Alcatel, which is part of the Linc consortium selected to run the ‘above ground’ lines. It also advises WS Atkins, another company heavily involved in PFI, and which is part of the Metronet consortium.

PFI has started to transform British industry. Construction firms are now buying into service companies; Carillion’s ownership of GT Rail Maintenance is a case in point. Carillion’s strategy is to generate ‘a growing stream of more visible and predictable earnings’, whose driver ‘is the development of our activities in private finance’. The Institute of Directors reported that 70% of its members with PFI contracts reported that they were an excellent way of making money whilst only taking on ‘manageable’ risks. The spate of refinancing deals reveals how minimal these risks are. The government has underwritten the long-term profits of the companies involved, legally and contractually. Hence, once the construction phase of any project is complete, banks are prepared to offer much lower rates of interest. The gravy train is set to run: Labour will make sure that it does.

FRFI 163 October / November 2001


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