AN investigative journalist who helped lift the lid on Labour’s private finance addiction has warned how the party’s new public spending policies are set to reward corporations with “pretty healthy” returns.
Private Eye journalist Richard Brooks has contributed to the magazine’s extensive coverage of private finance initiatives (PFI) and said Keir Starmer was getting cosy with “the same kind of players” as benefitted from the last Labour government’s spending schemes.
PFIs were a vehicle which allowed the Government to pass on the initial capital investment into infrastructure projects like building schools or hospitals onto private firms, who in turn were paid back by the state on completion.
The scheme fell into disrepute after numerous reports of waste, public bodies being saddled with unserviceable debts and private firms making eye-watering sums off the public purse.
'Keep an eye on it'
Brooks said that policies being brought forward by Labour were something to “keep an eye on” because of similarities they shared with New Labour PFI dogma.
Speaking to The National as part of PFI series, the Private Eye journalist said policies such as Labour’s plans for a National Wealth Fund involved “lots of arcane financial tools”.
He said: “Nobody outside is going to understand them, a bit like in PFI schemes, so they get manipulated and you can be pretty sure that the returns going to the private partners will be pretty healthy.
“There is no sign they are doing PFI in the sense of a company building and owning an asset that the Government then pays a fee for over 30 years, there’s no sign of that yet.
“But they are getting into complicated financial investment structures with the same kind of players. So you’ve got to keep an eye on it.”
Brooks, who has worked for the magazine since 2004, exposed how the Government and the major accounting firms which greased the wheels for PFI contractors were “fiddling the calculations” to ensure the work went to the private sector.
He said: “It had to compare any given project, like a hospital or a prison or whatever, what it would cost in the public sector to do it with what it would cost under PFI, which involved a lot of projections of future payments and so on and discounting those future payments.
“It basically fiddled those calculations by applying too high a discount and sorts of fiddle factors, risk factors.
“Often you would find that a PFI scheme would come in miraculously a pound cheaper or something, these kind of ludicrous results to get them going and approved.”
'An obvious fudge'
Brooks, a former tax inspector and one-time Treasury adviser, said his interest in PFI was piqued initially because “it was just an obvious fudge”.
He told The National: “It was clear that from the outset what PFI was about was squaring this circle that Gordon Brown had created where he’d said we’re going to boost public services but we’re not going to borrow any more money.
“He went about it by essentially handing over Government policy to a bunch of consultants who were going to cash in big time on it – and did.”
'Buy the snake oil'
He said Labour “started to buy some of the snake oil” because of volumes of studies produced by the accountancy firms which made huge sums facilitating PFI deals which claimed to show it was good value for money for the taxpayer.
Brooks took a special interest in the way the scheme also allowed public assets like schools, hospitals and government buildings to be traded on international markets like any other commodity.
He said: “One area I covered quite a lot was the way that the assets were being traded, the PFI corporate vehicles that had each contract just started to be bought and sold among investment funds, with all that goes with that, who would strip out profits and so on and cash in on it that way.
“They became assets to be traded on the market. A lot of them ended up in off-shore funds, they really did just become things for the market.”
One glaring example of this was when, in 2007, HSBC’s infrastructure investment company had bought half of the state comprehensive where Ed Miliband was educated.
