This week it was revealed just how lucrative privatisation contracts have become for the private firms which get them, and by the same measure just how much the general public has been ripped-off by them. This time it relates to the PFI (Private Finance Initiative) method of privatisation, whereby companies in the private sector are paid to build and run large public infrastructure projects (eg schools, hospitals etc). It turns out that the government, in its eagerness to get these projects away, has frequently under-priced them, and then to compound the problem, rising property prices have delivered further massive windfalls to the developers – windfalls which would have gone to the public if the projects had remained government-owned.
The contracts have proved so lucrative that many of the companies have been selling them on without even bothering to complete them, instead just pocketing an instant profit. The numbers involved are huge, running into £100’s of millions* (one company alone, Balfour Beatty, has made profits of £189m on government contracts in just a few years). When the PFI contracts were being set up, one of the arguments in favour of them was that any excessive profits would find their way back to the taxpayer, through increased tax revenue, but that too is failing as many of the companies now running these projects are based in tax havens, and so as well as making vast profits at public expense, they don’t actually pay any tax at all.
The irony of this of course is that while an essential public service like the NHS is itself under the financial cosh, and struggling to find the money to provide crucial services, the private companies behind it are now awash with public cash.
And now a further problem has been identified. These PFI contracts are being sold on and ‘traded’ on the financial markets, so that essential services in the UK are ‘owned’ by financial entities in far-flung parts of the globe. This is a very peculiar situation, and worryingly similar to what happened with the sub-prime mortgage crisis which led to the financial crash of 2008. One academic has already flagged it up as a potential threat to the entire financial system.*
So yet again we see the general public being ripped-off by the corporate sector through the process of privatisation, and yet again we see the financiers playing their games to produce profit for themselves, with little thought for the long-term consequences for everyone else. How much longer must we be forced to go through this before governments stop making policies which benefit their corporate buddies, and instead act in the interests of the ordinary people they’re supposed to serve?
* Excessive profits: http://www.independent.co.uk/news/uk/politics/exclusive-how-private-firms-make-quick-killing-from-pfi-9488351.html Financial Risk: http://www.independent.co.uk/news/business/news/rush-to-buy-big-pfi-contracts-risks-repeat-of-subprime-crisis-9497024.html