Liam Halligan: The Truth about PFI

Back in 2004, I received an invitation to the annual dinner of the Public Private Partnership (PPP) Forum. A glitzy, black-tie evening was promised, amidst the mock-Gothic splendour of London's Royal Courts of Justice. As a financial journalist, I am asked to numerous swanky, yet frankly humdrum events. But the mighty PPP Forum is different. It comprises many of the UK's corporate A-list - more than 100 contractors, banks and law firms.

PFI, in turn, is a multi-billion pound industry. New Labour has signed hundreds of long-term contracts with the private sector to construct - and then service and maintain - schools, hospitals and other public buildings. The government pays back investors over 30 years or more, after which the buildings revert to the state. Even two years ago, it was clear the government had based the biggest public building programme since the war on a gigantic - and controversial - hire-purchase scheme.

Given all that - and noticing the stiff-card dinner invitation implied a cabinet minister would be speaking - I decided to attend. The food wasn't bad and the atmosphere convivial. But the evening left me disturbed. Whenever I politely asked fellow diners an awkward question, I was - politely, for the most part - fobbed off. Back then, as now, I had reservations about PFI. Amid sumptuous surroundings, I questioned the double- and sometimes triple-digit returns being made from projects driven by public money. I protested that commercial confidentiality meant the details of long-term agreements between PFI companies and taxpayers often remained under wraps - even to the head teachers and NHS bosses trying to run the schools and hospitals involved. Because the private sector pays more to borrow than the state, I quizzed the logic of today's politicians building up huge off-balance-sheet liabilities under PFI, to be met by tomorrow's taxpayers. And, while the government claims to use PFI over conventional procurement only after a rigorous value for money test, I suggested this exercise was a sham.

After all, as early as 1997, then Health Minister Alan Milburn proclaimed, 'it's PFI or bust'. In other words, if local health chiefs don't agree to PFI, the hospital won't be built. I remember quoting figures to a chap at my table: by the end of 2003, PFI had been used for 90 of the 100 hospitals built or refurbished under New Labour. Similarly - 500 out of 550 new or renovated schools. Surely, the fact that PFI allowed ministers to be regularly photographed opening shiny new buildings - while keeping much of the spending off the government's books - meant the system was likely to be rigged. Gordon Brown, I argued, would continue using PFI, without question, to bolster his claim to be 'a prudent chancellor'. My analysis was met with a wry smile.

But what I most vividly recall from that dinner two years ago was a group of cuff-linked PFI professionals noisily toasting Saddam Hussein. 'The Iraq war has really done us a favour,' one well-oiled reveller explained, while slapping my back. 'Since it kicked off, you media types have been so obsessed with foreign policy that PFI has dropped off your radar'. At that point, I resolved to become very interested in PFI. And, over the last six months - with that toast still ringing in my ears - I've made an in-depth TV documentary.

So far, much of the analysis into PFI has been party pris. Trade unions, and academics funded by trade unions, have produced a slew of critical studies, which the PPP Forum has rightly dismissed as 'biased'. After all, much of the public sector is allergic to any form of private involvement in state schools and hospitals. The only other source of detailed 'research' has been big City accounting firms, invariably, in favour of PFI. But they're making a killing from what is now a £4bn-a-year industry so have a vested interest.

I have no ideological aversion to PFI. My only allegiance is to that ultimate vested interest - taxpayers. And, as my documentary - I hope - makes clear, PFI gives very bad taxpayer value. Some of the facts I've unearthed - on long-term liabilities, on ramped-up maintenance charges, on broken contracts are shocking.

New Labour has signed PFI deals worth £43bn. The long-term taxpayer cost - £150bn. The cost of changing a light switch in a leading PFI hospital? A cool £333 and I've got the document which proves it. Locked into a long-term PFI contract, a local authority is currently shelling out tens of thousands of pounds a month for meals and cleaning services in a school which closed last year. And a head teacher at a school which Tony Blair has singled-out as 'evidence PFI works' told me the policy is 'lunacy'. After years of wrangling with contractors, she said: 'I was initially very positive about PFI. But I've ended up hugely frustrated at the waste of public money'.

In the face of growing discontent, ministers remain petrified of reining-in the all-powerful PFI industry. Without it, public service delivery would grind to a halt. And, having committed themselves - and us - so deeply, the government can't bear to go back. My invitation to the most recent PPP forum dinner seems to have got lost in the post. The industry will never believe me, but I really wanted PFI to work. The private sector should be heavily involved in delivering our public services. We need to retreat from the dogma of state provision.

But as the PFI stench gets worse, opposition is growing, not only among the usual suspects, but among ranks of non-aligned taxpayers too.

And that is the tragedy. PFI is giving the private sector a bad name.

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