PFI - the gravy train rolls on
A briefing on the Private Finance Initiative
June 2002, issued by UNISONScotland for branches
PFI firms Balfour Beatty and Amec have announced
massive increases in profits. 20% for Balfour and 18% for Amec.
Balfour Beatty reported equity returns of up to 18% from PFI projects
compared to 3-4% for traditional engineering projects. They also
emphasised the value of long PFI contracts which "will generate
stable and growing profits and cash flows over a long period,
even if we never win another concession". Not many taxpayers are
getting 18% return on their investments. But those same taxpayers
are funding government largesse to the PFI industry!
Another big PFI beneficiary is the Royal Bank of
Scotland whose profits soared by 32%. Its corporate banking division
recorded a 122% increase in profits.
Staffing deal painfully slow
UNISON continues to press the Scottish Executive
to agree a staffing framework for all PPPs, building on the work
done in the NHSiS Partnership Forum. Progress is Painfully slow.
We hope the new Memorandum of understanding between the Executive
and the STUC will put a renewed urgency in the process.
NOT delivering for Scotland (or the UK)
In February, the Prime Minister launched a glossy
pamphlet Reforming our Public Services: Principles into Practice.
Reform is based on four principles; national standards, devolution,
flexibility and choice. The practice appears to be based on PPPs,
which we are told are "innovative" and "different from privatisation".
Evidence Tony? Where the private sector is used "it should not
be at the expense of proper working conditions for the staff".
This assurance was somewhat devalued by a leak on the same day
which suggested that ministers were planning to renege on promises
to end the two tier workforce and include pensions in TUPE.
In Scotland, Jack McConnell MSP held a similar event
at the SECC. Entitled Delivering for Scotland, the FM's document
has five key areas, five key principles and (yes, you guessed
it) five tests of spending. Less emphasis on privatisation although
reference was made to using "public and private resources". The
conflict between many of the principles (openness etc) and PPP/PFI
was highlighted in the question and answer sessions.
Scottish Organiser, Dave Watson however, presented
a paper to the STURN conference in Dundee on 12 February entitled
Private Finance -Modernisation or Manipulation? This paper examines
how PFI is manipulated to privatise Scotland's public services
and demonstrates that private finance is incompatible with the
First Minister's vision for Scotland's public services. Interesting
conflicts in audit privateers UNISON Scotland has circulated to
branches a list of all external audit appointments in Scottish
There has been a significant growth in the use of
private firms in recent years and potential conflict of interest
crops up as highlighted over the role of accountants Arthur Anderson
in the Enron collapse. PriceWaterhouseCoopers have been appointed
as auditors to 22 authorities and they have a large PFI practice
involved in 132 projects across the UK.
KPMG and Ernst & Young have also benefited from
the privatisation of the audit function. We would be interested
to hear from branches who believe there may be a conflict of interest
in their authority.
Best Value? - 1
Andy Kerr, Minister for Finance and Public Services
has announced that Best Value, will not only be applied to Local
Government in the forthcoming Bill, but will be applied across
the public sector including the Executive itself, Non-Departmental
Public Bodies (Quangos to you and me) and Health Boards.
Whilst claiming that this would lead to delivering
the best possible services at the best possible cost - not the
cheapest, Mr Kerr was silent on the conflict between Best Value
and the excessive costs of PFI and PPP. Still at least it should
put the final nail into the CCT coffin.
Best Value? - 2
An exchange between Glasgow City Council officials
and MSP's has highlighted the inflexibility of PFI.
Discussing the potential effect of free school meals,
the Glasgow officials pointed out that their PFI scheme was based
on the system now - not with an increase in take up. "We would
need to go through the whole process again if we had to ask them
to change their facilities." said Glasgow's David Melvin, "That
was never allowed for in the costings we have projected for the
next 30 years."
Seems like UNISON has been saying this for some
Politicians doing good
Scottish Secretary Matt Smith has welcomed a motion
moved in the Scottish Parliament by Trish Godman MSP (Convenor
of the Parliament's Local Government Committee) commending Scottish
public service employees.
It recognised that public needs "are best met by
services, utilities and resources that are retained in the public
sector and managed and staffed by those who have a sympathetic
understanding of and engagement with a public service ethos".
Sentiments we heartily concur with.
Credit also to Robin Harper MSP and Bill Miller
MEP for highlighting the UK government's opposition to the EU
draft procurement directive that would ban the selection of preferred
bidders before a contract has been developed.
The Local Government Committee has also published
a report into Scottish Local government finance, calling for return
of the business rate to local authorities and other progressive
steps. Scottish Schools at risk UNISON Scotland has published
a briefing examining the outline business cases for the current
school PFI bids. 16 bids have been submitted worth around £2bn
although the available subsidy is unlikely to exceed £500m.
The briefing highlights the absence of transparency,
the purely notional risk transfer and a substantial affordability
gap in most bids.
Despite the amount added to the Public Sector Comparator
for so-called' risk transfer', in all the Outline Business Cases
(OBC's) UNISON has seen- if the contract is terminated by company
failure or by poor performance, the authority picks up the bill.
We can't be absolutely sure the Risk figure is only
added to make the private sector quote look reasonable - but that's
only because one council erased all the figures before giving
UNISON the OBC! South Lanarkshire obviously knew it had something
If these bids are accepted a huge section of Scotland's
education system will be privatised.
A new critic of school's PFI is the Roman Catholic
Church. They have recognised that the school rationalisations,
that are one of the ways of bridging the affordability gap in
schemes, could reduce the number of Catholic schools in Scotland.
Local government future debt danger
Research undertaken for the SNP claims that local
councils will be faced with at least £3000m of debt for PFI schemes
on capital assets worth only £500m. Local authorities will receive
nearly £40m in "level playing field" PFI subsidies from the Scottish
Executive in 2002-03.
On a more positive note, the forthcoming Local Government
Bill includes a proposal to amend s94 controls which place constraints
on the borrowing powers of local authorities. UNISON will be pressing
for its abolition, allowing councils to make their own decisions
about capital investment. But this will only give councils a real
choice if the system of PFI credits or level playing field payments
are also reformed.
We will be looking for the Local Government Committee,
who have already questioned the wisdom of PFI, to make these points
during their scrutiny of the Bill.
Scotland -PFI capital
There are now 42 operational PFI projects in Scotland
with a further 47 in the pipeline. The total capital value exceeds
£2.6bn. Local government tops Scotland's PFI league with £957m.
Health has crept back to second place (£664m) ahead of water (£654m).
On paper 2001 was a bad year for PFI in Scotland
with only four new schemes being advertised. However, this hides
a shift towards broader PPP schemes, which are subject to even
less public scrutiny than PFI. Housing stock transfer, public
transport and water authorities are the main culprits. In addition
lots of new schemes are on the horizon including a massive privatisation
of schools, prisons, roads and the NHS in Glasgow.
£300m IT PFI to collapse?
The Lord Chancellor's Department are reported to
be about to pull the plug on the £300m IT PFI designed to ease
the transfer of case files between 500magistrates courts in England.
It has had a number of reported troubles, and, like the IT PFI
in the Passport Office looks like being yet another PFI failure
for the Government to live down.
Yet another list of PFI failures
The latest PFI failure is Dundee's Baldovie waste
to energy plant. The plant has rarely operated at full capacity
due to technical problems and has been reported as being in financial
crisis. The engineers responsible for this plant? None other than
Balfour Beatty! Where there's muck there's brass!
Edinburgh Royal Infirmary PFI has already run into
financial problems just as the first phase opens. A £40m shortfall
has been identified due to over-optimistic claims about the value
for money of PFI. Sounds familiar? You heard it from UNISON first!
The Dalmuir sewage plant is still not meeting its
discharge consent nine months after it should have done, and has
been reported to the Procurator Fiscal. Other water PFI failures
we highlighted in the last bulletin continue to dog the industry.
No wonder a new scheme hasn't been advertised since 1998.
East Renfrewshire are in dispute with Jarvis following
the damage caused when a roof blew off a PFI school. The damage
could run into hundreds of thousands of pounds. Who had to step
in and clear up the mess? The DLO!
A pilot scheme to contract out social work services
in Scottish prisons is costing up to 70% more. Despite the extra
cost the service has been reduced and in Edinburgh the prison
service has been forced to ask the City Council to bail it out
by providing an interim service.
Nine months into their contract, Amey Highways had
been issued with 19default notices over their contract to maintain
Scotland's trunk roads. Amey are also key partners in the Glasgow
and Edinburgh schools PFI schemes. Watch this space!
The Skye Bridge, Scotland's first PFI scheme is
back in the news. The House of Lords, Statutory Instruments Reference
Committee is assessing the legality of tolls. If campaigners are
successful the already enormous costs of this PFI scheme will
P&I Briefing No29 explains the threat
to public services of the government signing up to the General
Agreement on Trade in Services. Support for this position also
comes from the Director of Universities Scotland who warned the
Scottish Parliament that GATS could destroy higher education as
we know it.
Understanding the Private Finance Initiative:
This UNISON guide is aimed at School Governors which, as it
suggests, is written with English schools in mind. However, if
you ignore the references to the English education system the
guide contains many useful points which branches facing schools
PFI schemes will find helpful. (Stock no 1967) £10 per copy to
Public Service - Private Profit how the fat
cats got the cream is a report for UNISON by the Labour
research Department which highlights the payments to Directors
of the top 20 companies benefiting from government privatisation
plans. (Stock no 1945)
Small amounts of the UNISON materials can be obtained
from UNISON House, 14West Campbell Street, Glasgow G2 6RX. Tel.
0141 332 0006. Communications Officer, Chris Bartter is also available
to assist branches in producing local campaign materials. His
e-mail address is:email@example.com.