Although the private finance initiative (PFI) was a flagship policy of Tony Blair’s Labour government, it was conceived by the preceding Conservative administration (Craig and Brooks 2006:133). PFI was presented in 1992 by the then chancellor of the exchequer Norman Lamont as a way of bringing private sector management, efficiency and ‘fresh flows of investment’ into parts of the UK economy that were
‘traditionally regarded as the exclusive domain of the public sector’ (Clarke in Pollock et al 1997.) The rationale for PFI was clear: if private companies financed, built and managed projects, the government could procure the services on behalf of the public with relatively small payments over a protracted period81. Also, huge up-front capital investment could be avoided and thus, public sector debt would be minimised (Scott 2001.) Over the next five years, however, many recognised that PFI had limitations and the most vocal criticisms came from the Labour Party. In 1996, shadow health secretary Harriet Harman called PFI a: ‘Trojan Horse for privatisation’ (in Elliott and Atkinson 2007:131), and shadow chief secretary to the treasury, Alistair Darling, warned: ‘Apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come’ (in Elliott and Atkinson 2007:131.)
In 1997, however, the new Labour government fundamentally revised its opinion of PFI and quickly placed it at the vanguard of economic policy.As chancellor, Gordon Brown was eager to fulfil his pre-election promise to reverse two decades of under-investment in public services but equally, he was hamstrung by a commitment to adhere to spending limits imposed by his Conservative predecessor (Elliott and Atkinson 2007:130-1) and had inherited a public sector debt that stood at 45 percent of GDP (Craig and Brooks 2006:134.) Two months after the general election, health minister Alan Milburn said: ‘When there is a limited amount of public-sector capital available, as there is, it’s PFI or bust’ (Monbiot 2007a.) Indeed, PFI provided an ideal solution to Brown’s conundrum and consequently, became the default model for financing public works (Smith, C 1999:2.) The extent of Labour’s volte-face became evident during its first term in office: in 2000 the government announced some £20 billion-worth82 of public projects would be privately-funded by 2003 (Monbiot 2001:63) and by 2001, 450 PFI contracts had been signed (House of Commons Library 2001.) In comparison, the preceding Conservative government had approved a mere 50
81 With contracts between 30 and 60 years, PFI is akin to a mortgage (Schifferes 2002a) or ‘hire purchase’ (Pollock 2005: 56) 82 News reports tend not to specify whether the financial amount represents the capital value or the total revenue commitments (payments). Hence, the quoted figure for 2007 (HCCPA 2007) is lower than the BBC’s figure for 2002 (BBC 2002a)
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contracts in the four years to 1997 (Osler 2011a.) The Labour government’s commitment to PFI meant that within four years: ‘more capital projects (had) been undertaken for a given level of public expenditure and public service capital projects (had) been brought on stream earlier’ (ibid.) thus confirming the government’s main justification for PFI. Furthermore, argued proponents, the private sector would provide the antidote to the cost overruns and protracted delays that had become synonymous with public sector projects.83 Profit-focussed management, it was argued, is far more adept at delivering projects on time and on budget, particularly if sanctions or bonuses are involved (Scott 2001.)
These were compelling arguments and yet even organisations usually sympathetic to the Labour Party began to raise concerns. In 2001, for example, the Institute for Public Policy Research (IPPR 2001:6) found that PFI was providing: ‘significant gains in roads and prisons but not in hospitals and schools’ but it also said that the
government’s central premise - using private finance allowed more projects to be undertaken than would otherwise be possible - was a ‘spurious argument.’ The most common criticism, however, was the cost of finance. It is widely agreed that
governments can always borrow more cheaply than private sector (Kelly in Scott 2001, Unison 2011) and, by extension, public enterprise is always the most cost-efficient way to build infrastructure (Osler 2011a.) There were also concerns about the disparities between the capital value and the lifetime payments of PFI projects.
For example, the building cost of Swindon hospital was £76 million, whereas under a 30-year PFI contract the government would pay £500 million (Osler 2002:122.) Similarly, the Edinburgh Royal Infirmary would have cost £180 million if built with traditional funding but under a 30-year PFI contract, the total was £900 million (Toynbee 2002a.) Such extreme differences were noted by members of the Association of Certified Accountants (ACCA) who agreed it would be cheaper to finance projects through public funding (BBC 2002f), and that PFI was: ‘such poor value for money that (it) should not be used for public sector investment’ (Perkins 2002a.) PFI projects also have high set-up costs, including tortuous tendering procedures and protracted contractual negotiations. According to Unison, the first 15 NHS trust hospitals to adopt PFI spent £45 million on advisers (Unison 2011) and Richard Brooks84 estimated that, by the end of 2005, advisers and consultants had earned around £15 billion from PFI (Craig and Brooks 2006:136.)
83 The London Underground Jubilee Line extension and the Millennium Dome were completed in 1999. These high-profile projects were publically-funded and managed, over budget and completed behind schedule (Scott 2001)
84 Richard Brooks is a prolific journalistic critic of PFI/PPP. He has written numerous articles for Private Eye on the subject
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With more expensive borrowing, high bidding costs and the profit imperative of contractors, the Treasury developed complex methods for appraising the value-for-money of proposed deals (ibid.) Officially PFI was only to be used if it proved to be better value than the traditional method of financing, but it became ‘the only game in town’ accounting for 90 percent of all completed schools and hospitals up to 2002 (Denny 2002a, Guardian 2002b.) Jeremy Colman, former deputy director general of the National Audit Office, said that some PFI appraisals were based
‘pseudo-scientific mumbo-jumbo’, and he also suggested that executives were effectively forced to accept PFI: ‘If the answer comes out wrong you don't get your project. So the answer doesn't come out wrong very often’ (in Timmins 2002.) There were also concerns about being locked into long-term contracts during which public needs may change (Pollock 2005:57, Guardian 2002b); poorly designed buildings (Mathiason and Morgan 2002a, Economist 2003); reductions in the number of hospital beds (Craig and Brooks 2006:143); the lack of long-term health care facilities (Hutton 2002:232) and the closure of older, local hospitals and schools in an attempt to realise economies of scale (Elliott and Atkinson 2007, Henry 2007.)
Other critics believed that the problems with PFI ran far deeper than cost and expressed concerns about its contribution to the increasingly blurred delineation between government and business (Whitfield 2001, Hertz 2001, Osler 2002, Ramsay 1998.) Allyson Pollock85 argued that British businesses, particularly the construction industry, had been supportive of PFI since its inception (Pollock 2005), and with the most obvious opportunities for outright privatisation already exhausted, PFI provided an innovative route into previously sacred territory (Monbiot 2001:9, Whitfield
2001:5.) In 1997 Gordon Brown was eager to convince the City of London of his business credentials (Craig and Brooks 2006, Ramsay 1998) and the Confederation of British Industry (CBI) requested and was subsequently given direct involvement in designing PFI rules (Monbiot 2001:97, CBI 1996.) Proponents of PFI claimed that the high profit margins – which on some PFI schemes exceeded 50 percent (Timmins 2005) - were justified but it was clear that the state would assume the majority of the risk86 (Harvey 2005:77, Elliott and Atkinson 2007:132.) Hence, the over-riding concern about PFI was that if public service provision was driven by commercial rather than social imperatives, then the nature of health, education and other
85 In the early 2000s, Professor Allyson Pollock was head of the Public Health Policy Unit at University College London and is arguably the most learned and vociferous critic of PFI in the health service
86 This was apparent when the government agreed to underwrite 95 percent of the money borrowed by private consortia for the London Underground PPP (Osler 2002:135)
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services may be changed irrevocably (Pollock 2005:57, Osler 2002:119.) Despite the government’s assertion that whether an asset is built and owned by the public or the private-sector is irrelevant (Blair 2002, 2002a), others argued that the means of public service provision fundamentally changed the ends (IPPR in Hutton 2002:232, Whitfield 2001.)
1 - The Labour Party Conference and the House of Commons Report
To assess the nature of the mediated debate about private finance in public services, this case study hinges on two key dates. The first is September 30 2002 when a motion at the Labour Party Conference to back PFI as government policy was defeated, and a union-sponsored motion demanding an independent inquiry into PFI was carried (Assinder 2002, BBC 2002a.) The second date is May 15 2007 when the House of Commons Committee of Public Accounts published the report: Update on PFI debt refinancing and the PFI equity market (House of Commons Committee of Public Accounts [HCCPA] 2007.) Before starting the analysis, however, it is important to place each event in a wider context. At the time of the 2002 Conference, the Treasury had approved contracts for 40 hospitals and 550 schools - under construction or in operation - with a further 60 hospitals in the planning stage
(Guardian 2002b.) In total, the government had committed to more than £100 billion-worth of future payments (BBC 2002a.) Five years into Blair’s premiership, however, the government was unpopular: public opinion was divided about a possible invasion of Iraq (Assinder 2002b) and there was widespread discontent among the electorate and disillusionment in the Labour Party membership87. Until 2002, the Labour hierarchy had disengaged from intellectual discussions about PFI (Pollock 2005:57, Guardian 2002b) but now members had compelled the leadership to justify its position and 63 percent of the public supported the unions’ call for a review of PFI (Travis and Maguire 2002a.) Even though the 2007 report was published in less contentious times, many of the problems predicted by critics since Labour’s volte-face were becoming evident. The report confirmed some 750 PFI schemes costing over £54 billion had been approved (HCCPA 2007, Hencke 2007) and it also found that the government was being ‘outwitted’ when negotiating with consortia (Hencke 2007a.) In April 2007, fears were raised that Metronet, a company responsible for renewing three-quarters of the London Underground network, could collapse(Milmo
87 Despite winning a second landslide election victory a year earlier, two-thirds of voters were dissatisfied with Tony Blair (Jones, G 2002.) Also, party membership had fallen from over 400,000 in 1997 to 250,000 in 2002 (Guardian 2002a)
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2007a.) 88 In May, during the Labour Party leadership contest, Gordon Brown, was challenged about PFI by his opponents (Wintour 2007a, Woodward and Inman 2007) and the SNP renewed its pledge to create a not-for-profit alternative to public-private partnerships (PPP)89 (Knox 2007a, SNP 2007:19.) For the first time, the Labour government was faced with focussed parliamentary opposition to private finance, albeit in a devolved assembly. Also in May 2007, concerns about PFI’s poor value for money were confirmed by the Daily Telegraph which estimated that the government had bought £43 billion-worth of services that had a ‘long-term cost to taxpayers of
£150 billion’ (Roberts et al 2007.)
As illustrated in the introduction to this chapter, opinion was divided about the merits of private finance in public services. One of the goals of this case study is to assess the extent to which different perspectives were awarded exposure and credence in news. Hence, before embarking on the data analysis, the researcher undertook a pilot study to identify the key characteristics of each position. This revealed that the mediated debate was dominated by PFI advocacy and PFI scepticism. Two further positions were also present but it was apparent, even at this early stage of analysis, that they received far less coverage.
Privatisation
Over the sample periods, detailed arguments for outright privatisation never appeared in debates about the funding of public services, but some commentators did call for an expansion of the private sector involvement beyond PFI. The
Economist, for example, argued that Blair should be bolder with his reforms of the health service (Economist 2006) and senior Conservative politicians promoted
‘radical and meaningful – not sham - reforms’ (Fox in BBC 2002c), ‘more private finance into health’ (Johnson 2002), and hospitals with ‘as much freedom as possible’ (Fox in BBC 2000e.) The CBI also supported an expansion of PPPs with the government turning ‘from being a provider of public services to a
commissioner…and to introduce more competition and markets into public service provision’ (Conway 2007a.)
88 Metronet called in the administrators in July 2007 (BBC 2007a) and the PPP was terminated in May 2010 when maintenance was brought back ‘in house’ (BBC 2010d)
89 Public private partnership (PPP) can be defined as: ‘any collaboration between public bodies, such as local authorities or central government, and private companies’ (BBC 2003b) and, hence, PFI is one type of PPP (Whitfield 2001)