The first victim of PFI?
Discussion
Megaflow said:
I wonder how much of the overspend is due to lack of funding and how much is due to poor cost control...
I can well believe it. One county council I do work for uses three companies to do what we do, for no other reason than lack of joined up thinking. I went for a walk round some council offices identifying the different firms' products with my contact. She wasn't aware of the third company until I pointed out their stuff, then she went "Oh, that explains the invoices from them we don't understand that we keep paying"
Since then (2 years ago ish) she's been planning to get the three of us to tender for all the work "imminently".
blueg33 said:
Steffan said:
The likes of PFI have to go.
What would you replace it with? It what way would it be cheaper or better?think tank said:
Andrew Haldenby, from the think tank Reform, told the BBC that some other PFI schemes had delivered good hospitals and good value for taxpayers.
The point being, lets not tar all with the same brush, and have a proper understanding of what is needed and how it is going to be funded.But, don't take too long, NHS has already had a 2 year hiatus and the existing infrastructure is degrading by the day
Edited by blueg33 on Tuesday 26th June 17:32
johnfm said:
Transparent, on balance sheet funding so that taxpayers and everyone else can understand the true cost of government largesse and social engineering / vote buying projects.
If that's all you want, there is no need to do away with PFI and other things similar as per your earlier statement, just change accounting rules so that PFI is on balance sheet.sidicks said:
Why borrow at 10% or more through PFI when you can just issue Gilts at 3%?
It wouldn't matter if its on balance sheet because people can see what they are getting.The 10% is on the equity element, senior debt is much cheaper as long as there is a government covenant.
Preudential borrowing is limited, i guess because the Gov want to keep central Gov borrowing down. Also as stated before its Gov cashflow and a way to get private money in which makes more cash available than otherwise maybe.
TBH, I would love it if Gov used their own money, it would make the deals so much easier, bank due dilligence is a PITA. Mind you, senior debt is only 5% on these jobs at the moment. 1.5% seems like am price worth paying for cashflow benefit?
johnfm said:
blueg33 said:
Steffan said:
The likes of PFI have to go.
What would you replace it with? It what way would it be cheaper or better?think tank said:
Andrew Haldenby, from the think tank Reform, told the BBC that some other PFI schemes had delivered good hospitals and good value for taxpayers.
The point being, lets not tar all with the same brush, and have a proper understanding of what is needed and how it is going to be funded.But, don't take too long, NHS has already had a 2 year hiatus and the existing infrastructure is degrading by the day
Edited by blueg33 on Tuesday 26th June 17:32
Perhaps the worst feature of the Brown/Blair governments was the absolute refusal to be honest with the electorate and admit they were buying votes. They knew perfectly well that these PFI initiatives would end in tears. Yet they went on overspending knowingly. As they did in every other facet of government expenditure.
The worst feature of UK politics today is the outright knowing dishonesty of the Labour party. They know that the government cannot spend its way out of the recession that Labour created by overspending year after year for over 10 years. They know it is their behaviour that got us into this mess. They know they are responsible. But Milliweed and Balls Up cheerfully deny all responsibility and maintain spending is the answer.
I would care less if they were not educated men. Ignorance is forgivable. Knowing deliberate, dishonesty, for self aggrandisment by educated men is not.
The original idea of PFI was a good one, it's just a shame that Labour so abused it. It has been known for years that Labour was doing this, setting up contracts that looked good at the time, showing how 'wonderful' Labour was to be "building" these projects (like hospitals) knowing full well that the electorate would be paying a very heavy price later on - when they themselves had sailed off into the sunset. This was predicted by a number of people on PH. Yet another case of Labour eating away at the country's finances and overall standing in the world. They have bankrupted us. They knew what they were doing.
Steffan said:
This whole business was dreamt up by Tony Blair and his henchmen. This was always designed simply to allow even more government spending without it counting as government spending directly and for that reason alone.
Just to be clear, PFI was dreamt up by the John Major government back in 1992, although the Blair government certainly ran with and expanded the idea.blueg33 said:
It wouldn't matter if its on balance sheet because people can see what they are getting.
Err no, they would just see the capital amount, not the interest charged (which is obviously important).blueg33 said:
The 10% is on the equity element, senior debt is much cheaper as long as there is a government covenant.
Why not raise the funds using the cheapest source possible (issuing Gilts)?blueg33 said:
Preudential borrowing is limited, i guess because the Gov want to keep central Gov borrowing down. Also as stated before its Gov cashflow and a way to get private money in which makes more cash available than otherwise maybe.
The government was trying to deceive the public and hide borrowing - there is economically no reason to use PFI rather than issue debt.There is no cashflow advantage either - they could tranche an existing gilt issue and get billions easily.
blueg33 said:
TBH, I would love it if Gov used their own money, it would make the deals so much easier, bank due dilligence is a PITA. Mind you, senior debt is only 5% on these jobs at the moment. 1.5% seems like am price worth paying for cashflow benefit?
There is no cashflow benefit!We don't need PFI at all - why pay a developer's financing costs - just plan for and pay maintenance annually!
Sidicks
Edited by sidicks on Tuesday 26th June 20:52
mudster said:
Steffan said:
This whole business was dreamt up by Tony Blair and his henchmen. This was always designed simply to allow even more government spending without it counting as government spending directly and for that reason alone.
Just to be clear, PFI was dreamt up by the John Major government back in 1992, although the Blair government certainly ran with and expanded the idea.turbobloke said:
To be even fairer, it was dreamt up a long time ago - the recent variant originated in Australia in the 80s allegedly and was picked up by the Major government prior to Labour getting in on the act in a major (no pun intended) way.
It was designed for projects that would be self-financing e.g. toll roads where subsequent income could be used to fund the PFI charges, rather than excessive ongoing commitments mortgaging tax income well into the future...sidicks said:
blueg33 said:
It wouldn't matter if its on balance sheet because people can see what they are getting.
Err no, they would just see the capital amount, not the interest charged (which is obviously important).blueg33 said:
The 10% is on the equity element, senior debt is much cheaper as long as there is a government covenant.
Why not raise the funds using the cheapest source possible (issuing Gilts)?blueg33 said:
Preudential borrowing is limited, i guess because the Gov want to keep central Gov borrowing down. Also as stated before its Gov cashflow and a way to get private money in which makes more cash available than otherwise maybe.
The government was trying to deceive the public and hide borrowing - there is economically no reason to use PFI rather than issue debt.There is no cashflow advantage either - they could tranche an existing gilt issue and get billions easily.
blueg33 said:
TBH, I would love it if Gov used their own money, it would make the deals so much easier, bank due dilligence is a PITA. Mind you, senior debt is only 5% on these jobs at the moment. 1.5% seems like am price worth paying for cashflow benefit?
There is no cashflow benefit!We don't need PFI at all - why pay a developer's financing costs - just plan for and pay maintenance annually!
Sidicks
Edited by sidicks on Tuesday 26th June 20:52
Funding, I have alreadyu said that prudential borrowing would be simpler - this is effectively using money raised by central gov via gilts, bonds, taxes etc. I am no economist, but surely issuing too many gilts impacts on the govs ability to borrow for other purposes?
Your next point is irrelevant, see above point
Of course there is a cashflow benefit, it spreads the cost of the development over 25 years or so rather than the gov taking a lump sum hit.
History tells us that the ne think the NHS etc doesnt do is maintain its buildings. The back log maintennance on non PFI buildings runs to billions (I said that before)
I agree with you on the developers funding costs, we have to cary lots of risk on that up front.
blueg33 said:
You can show interset costs on the balance sheet especially as it would require a change in accounting rules anyway.
Regardless, why borrow at 10% or 5% when you can borrow at 3%blueg33 said:
Funding, I have alreadyu said that prudential borrowing would be simpler - this is effectively using money raised by central gov via gilts, bonds, taxes etc. I am no economist, but surely issuing too many gilts impacts on the govs ability to borrow for other purposes?
Issuing too many gilts could be a problem, but the market isn't stupid enough to ignore the 'hidden' PFI debt so it is already factored in. The effect of PFI deals was purely that the government could claim to have met their debt-GDP targets to the less informed - sophisticated investors were fully aware of the expensive PFI commitments and adjusted yield requirements accordingly.blueg33 said:
Of course there is a cashflow benefit, it spreads the cost of the development over 25 years or so rather than the gov taking a lump sum hit.
That's the point of raising money via issuing gilts - the cost is spread over 25 years or more, so there is no cashflow benefit with PFI!blueg33 said:
History tells us that the ne think the NHS etc doesnt do is maintain its buildings. The back log maintennance on non PFI buildings runs to billions (I said that before)
That's a government planning issue to which PFI is not a unique solution!Let me start by stating where I am coming from. I was a member of a PFI team (four people - yes 4) who were managing a £200M PFI project. I'm being deliberately vague about which PFI it was for reasons that I hope are obvious.
I think that the idea of PFI (if it were used like a mortgage) would be a good one, but how would you like to HAVE TO pay for something for 20 years and then not own it - that is PFI. Not only that, but the things that were PFI'd were non-core business. If the NHS were short of cash, you would think that they could reduce spending on their non-core business, but with PFI that is the one thing that you cannot cut costs on and you HAVE to pay for. So, you can only reduce spend on your core business (less nurses / less operations for instance).
Our contract was very well written and covered just about everything you could think of (especially from the Supplier's risk side). I suspect that the Supplier's lawyers were paid a lot more than the Government's!! We could only manage the contract. If there were ANY additional requirements (or things that were missed by us at the contract stage), this would require a VERY expensive contract amendment. For instance, if we wanted to remove a service from the contract, the price would be more than to have that service supplied for the next 20 years.
The "Monthly Service Fee" HAD to be paid unless the Supplier was consistently out of spec. After several years of being within spec, the Supplier could fail to deliver the service for a whole month and would still have to be paid as they had not gone outside the allowable tolerance. It never came to this, but it shows how the contract was written.
Most of the lines in the Government's budget is made up of "Mickey Mouse Money", as it isn't real (and can be shuffled about within each Dept without any serious problems) and is used mainly for budgetting, but PFI Monthly Service Fees are different - they are real money.
The PFI Monthly Service Fee was one of the lines on the monthly budget and was costed for the next 20 years (no real problems as long as the budget was not cut). The problems came with any work that was done outside of the contract. This accounted for approx 3% of the Monthly Service Fee, but it was unplanned and uncosted - and REAL MONEY was required - not just some numbers on a spreadsheet.
I don't know about the contracts for the hospitals and schools, but I do know that the contract I was involved in will end on a certain date and so will the service. When that service ends, ALL the assets that were used to supply the service belong to the Supplier and if the Government has not put contingencies in place the capability will cease.
I think that PFI has the potential to be as big a threat to this country as the pension problem.
I think that the idea of PFI (if it were used like a mortgage) would be a good one, but how would you like to HAVE TO pay for something for 20 years and then not own it - that is PFI. Not only that, but the things that were PFI'd were non-core business. If the NHS were short of cash, you would think that they could reduce spending on their non-core business, but with PFI that is the one thing that you cannot cut costs on and you HAVE to pay for. So, you can only reduce spend on your core business (less nurses / less operations for instance).
Our contract was very well written and covered just about everything you could think of (especially from the Supplier's risk side). I suspect that the Supplier's lawyers were paid a lot more than the Government's!! We could only manage the contract. If there were ANY additional requirements (or things that were missed by us at the contract stage), this would require a VERY expensive contract amendment. For instance, if we wanted to remove a service from the contract, the price would be more than to have that service supplied for the next 20 years.
The "Monthly Service Fee" HAD to be paid unless the Supplier was consistently out of spec. After several years of being within spec, the Supplier could fail to deliver the service for a whole month and would still have to be paid as they had not gone outside the allowable tolerance. It never came to this, but it shows how the contract was written.
Most of the lines in the Government's budget is made up of "Mickey Mouse Money", as it isn't real (and can be shuffled about within each Dept without any serious problems) and is used mainly for budgetting, but PFI Monthly Service Fees are different - they are real money.
The PFI Monthly Service Fee was one of the lines on the monthly budget and was costed for the next 20 years (no real problems as long as the budget was not cut). The problems came with any work that was done outside of the contract. This accounted for approx 3% of the Monthly Service Fee, but it was unplanned and uncosted - and REAL MONEY was required - not just some numbers on a spreadsheet.
I don't know about the contracts for the hospitals and schools, but I do know that the contract I was involved in will end on a certain date and so will the service. When that service ends, ALL the assets that were used to supply the service belong to the Supplier and if the Government has not put contingencies in place the capability will cease.
I think that PFI has the potential to be as big a threat to this country as the pension problem.
pingu393 said:
I think that the idea of PFI (if it were used like a mortgage) would be a good one, but how would you like to HAVE TO pay for something for 20 years and then not own it - that is PFI. Not only that, but the things that were PFI'd were non-core business. If the NHS were short of cash, you would think that they could reduce spending on their non-core business, but with PFI that is the one thing that you cannot cut costs on and you HAVE to pay for. So, you can only reduce spend on your core business (less nurses / less operations for instance).
This to me, is where we are already coming unstuck with PFI. More and more, we'll see managers making the decision, that they can't get rid of the PFI payments, but still have to reduce costs, so they get rid of the Doctors / Nurses / Cleaners / Teachers etc.My sister is a senior member of the teaching staff, at a secondary school, in a part of the peninsular, where the children need as much help as possible. Together with approx 20-30% of the staff, she was told that at the end of this year, she would be made redundant.
Next year, the shiny, newish, well equipped school will have classrooms that are empty and unused, as the school cannot afford to pay for the PFI payments AND the teachers required to make it function . . . . . . New Labour's economic miracle in practice, you just couldn't make it up!
AndrewW-G said:
pingu393 said:
I think that the idea of PFI (if it were used like a mortgage) would be a good one, but how would you like to HAVE TO pay for something for 20 years and then not own it - that is PFI. Not only that, but the things that were PFI'd were non-core business. If the NHS were short of cash, you would think that they could reduce spending on their non-core business, but with PFI that is the one thing that you cannot cut costs on and you HAVE to pay for. So, you can only reduce spend on your core business (less nurses / less operations for instance).
This to me, is where we are already coming unstuck with PFI. More and more, we'll see managers making the decision, that they can't get rid of the PFI payments, but still have to reduce costs, so they get rid of the Doctors / Nurses / Cleaners / Teachers etc.My sister is a senior member of the teaching staff, at a secondary school, in a part of the peninsular, where the children need as much help as possible. Together with approx 20-30% of the staff, she was told that at the end of this year, she would be made redundant.
Next year, the shiny, newish, well equipped school will have classrooms that are empty and unused, as the school cannot afford to pay for the PFI payments AND the teachers required to make it function . . . . . . New Labour's economic miracle in practice, you just couldn't make it up!
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