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Work and prosperity
5 July 2012

How not to get ripped off on public infrastructure

When it comes to the great financial scandals of our time, how much of the moral high ground does the Labour Party deserve? Very little when you consider who was in charge at the time that things went so badly wrong. And yet, as each new misdeed comes to light we see Eds Miliband and Balls leading the chorus of public outrage. It’s like Sweeney Todd complaining about the content of Mrs Lovett’s pies.

But at least there’s one financial scandal where a Conservative is on the front foot. The scandal in question is the Private Finance Initiative and the Conservative is Jesse Norman MP. His pamphlet on the PFI was published by the Centre for Policy Studies last week and there’s an excellent introduction to it on his website:

  • “This year marks the 20th anniversary of the Private Finance Initiative. It has been arguably the boldest and costliest experiment in public policy ever conducted, resulting in more than £200 billion of public debt, the burden of which will hang over the British taxpayer for decades.
  • “Initiated by the Tories, PFI was ramped up tenfold by Gordon Brown, who used it to get the cost of large infrastructure projects off the national balance sheet.  Under Labour it became “the only game in town”, as roads, schools, hospitals, prisons, IT systems and defence contracts were shoehorned into a single approach, without adequate attention to cost or need.”

It is not, of course, enough to know what went wrong, we also need to know why:

  • “…the main reason why any big procurement project fails is simple:  a bad client. In the case of PFI, hospital trusts, local authorities and ministries were frequently rather bad clients. Often they were dominated by vested interests… or they over-specified projects or changed their minds about what they wanted midway through… often lacked the necessary commercial and negotiation skills, were naïve about using outside advice, and did not adequately understand the risks.”

Designed to keep public debt off the balance sheet, PFI deals are notoriously complex – a fact that accounts for much of what went wrong. But even without the financial jiggery-pokery, UK governments have a long history of getting ripped off on infrastructure spending:

  •  “We need to get serious about educating public sector bodies to commission big projects more effectively, and with better support from Whitehall.  That means a new centre of excellence to handle infrastructure projects, a single unit that operates across all government departments. Dedicated legal, financial and commercial experience can thus be brought to bear on projects, keeping costs down.”

Of course, if the Government were to create such a unit, it would mean admitting that those currently responsible for most infrastructure procurement – i.e. various bits of the civil service – aren’t up to the job. Thus, as usual, the path of reform runs through Whitehall’s gritted teeth. Still, that’s why we have elected politicians, isn’t it?


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