By Henry McCubbin

In Glasgow the 3ED consortium, involving the Miller Group construction company, the Halifax Bank and Hewlett Packard computers, will organise construction and retain operational control of school buildings for the next 29 years. The city council will rent the buildings from 3ED for an annual fee of £40.5 million and 600 ancillary staff will be transferred from local authority to private employers. At the end of the 29 years, the assets will return to city council control, after 3ED have recouped £1.2 billion—three times their initial outlay of £220-400 million.

According to information provided by Jane Shaoul of Manchester University and Dave Watson of Unison, the Glasgow Schools PFI project, Britain’s largest public private partnership, will cost the City Council £34.6 million more than if its new secondary schools were funded by traditional methods. The costing is based on the council’s published business case for the deal, in which a private consortium will build and refurbish the city’s entire secondary school stock directly contradicts the authority’s claim that the private route would save taxpayers £36m.

The council is justifying the vast payments on the grounds that the scheme will not cost the city’s 620,000 population anything in extra charges. This is a complete distortion, since Glasgow has already been paying for 3ED before a single brick has been laid. Closing nine secondary schools over the last few years, and condensing 30,000 pupils into the remaining buildings have gained the Council a temporary surplus in their education budget. The closures were pushed through against considerable opposition from pupils, teachers and parents in the schools concerned.

This budget surplus will go to 3ED. In addition, repayments to 3ED are guaranteed for the next 30 years, regardless of the council’s finances and the social needs of the population. The council is to cut a further £24 million from its spending this year—including £3 million from the social work budget and £7.3 million from education. The cost of primary school meals is to increase by 10 percent and in secondary schools by 15 percent.

Labour has boasted that never before has a UK city been able to forecast its education budget so far ahead, nor build so many schools all at once. Yet the administration is so nervous that the real financial and educational implications of the deal will come out, that the full arrangements are still secret. Councillors voted for the package on the basis of unsubstantiated assertions that PPP was 5 percent cheaper than retaining the work under local authority control. This vote may come to haunt those members who were too lazy or unable to grasp the fact that they were sanctioning an incomplete plan. Later this year Audit Scotland will be investigating PFI and councilors can only hope that such lax administration is not liable to surcharge as the amounts committed are huge.

In view of the Scottish Executive’s new requirements on public disclosure, some authorities are seeking to avoid public scrutiny by presenting only half the picture in the published documents. Unison’s analysis also showed:

• a massive £70m risk factor, to make the deal look cheaper than the public alternative • borrowing underwritten by the council

• key risks retained by the council

• the original requirement for refurbishment of 26 schools and the construction of two new schools changed to the construction of 12 new schools as this would be more profitable for the construction company

• hidden subsidies from the government

• no demographic forecasts for the school population.

In essence, there are very few hard figures in the business case and that makes it difficult to make valid comparisons with the public sector alternative. What we do know is that, in hard cash, the taxpayer would get a better deal through public sector finance.

Renfrewshire Council has challenged the Scottish Executive to prove that PFI meets best value criteria. The Labour controlled council proposed an extension of St Andrew’s School at a cost of £3.75m. The Scottish Executive agreed to underwrite the costs of bulldozing the school and building a new one at a cost of £45m. The council’s estimate of the cost of building a new school was £l9m.

It has only been possible to challenge the government’s case that PFI provides value for money in the area of health services, because a few of the business cases submitted to government for approval have become publicly available. This is unlikely to continue, as under the government’s proposed Freedom of Information legislation such documents will, in future, be withheld to protect “commercial confidentiality”

This will not present a problem to one Scottish Council. Falkirk Council has simply and steadfastly refused to open its school’s PFI scheme to public scrutiny. Audit Scotland please note.

The notion that private enterprise always produces efficiency gains must surely now be exploded as pure ideological hype divorced from economic sense after what we have witnessed on British railways as of late. The spectacle of long queues of angry people outside Passport Agency offices last year caused the government acute embarrassment as more than half a million passports were still waiting to be processed, because the private contractor, Siemens, were running late with the installation of a new computer system. Andersen Consulting is massively over budget and years overdue in delivering the computerised National Insurance recording system. This follows disruption caused by the Home Office’s new immigration computer and problems with a Prison Service system. Despite contracts with penalty clauses, the government is refusing to seek full compensation for such big Information Technology projects that have gone wrong, in the interests of getting PFI working. Siemens is set to get away with a measly £60,000 fine and Andersen with £3.9 million.

As the House of Commons Public Accounts Committee noted, the failure to obtain compensation “would result in the risk purportedly transferred to Andersen Consulting under the PFI contract being transferred back to public sector”. The government has chosen to attribute blame for these failed projects to public sector staff and agencies, rather than abandon its policy of using PFI to finance its modernisation programme.

Odd this since the same company is quoted in the Full Business Case presented by Glasgow’s Officials as follows:

Arthur Andersen, commissioned by the Treasury Taskforce, published a report in January 2000 on Value for Money Drivers in the Private Finance Initiative. The six primary value for money drivers are

• risk transfer

• output based specification

• long-term nature of contracts (including whole life costing)

• performance measurement and incentives

• competition

• private sector management skills

This relationship was once called a conflict of interest. It is certainly blurring the distinction to invisibility between advisors and beneficiaries of that advice. Should we take it that there is a certain ambivalence as to whom the risks are being transferred and are the outputs profit? Long term contracts are necessary in order that there can be a sufficiently large service payments within them to allow the project to slide under wholly artificial treasury rules as to what constitutes public sector finance. Performance measurement has been part of public sector management for decades. Competition? What competition after a contract has been issued for 30 years? One can rest assured that 30 year contracts as advised by Andersen for interested parties such as Andersen will be a damn sight longer than those offered to the staff subject to these contract manipulations. As for private sector management skills see above.

Governments of all political shades have introduced privatisation, deregulation, liberalisation, and now “public private partnerships” at the behest of big business. Similar policies are being applied all over the world. The International Monetary Fund and the World Bank have made loans to developing countries conditional upon the opening up of the public sector to such “partnership” schemes. Both are now promoting the use of “markets in infrastructure provision”.

The World Trade Organisation is intent on liberalising government procurement and infrastructure provision. Its Government Procurement Agreement (GPA) came into force for a number of countries, including those in the EU, opening up public contracts to international competition. The extension of GPA is a key issue in the next round of WTO talks later this year. The financial institutions and banks, who play a leading role in PFI deals in both Britain and the rest of Europe, are the real beneficiaries as public assets are transferred into the pockets of private capital.

The private sector has always provided goods to the public sector whether building schools or manufacturing beds and pharmaceuticals. PFI is about giving the private sector control over public procurement, a recipe for corruption if ever there was one. Contracting out and its twin, deregulation, far from providing freedom has in fact provided tyranny, albeit a private tyranny for those subjected to be employed under it by socializing the costs of job reductions and privatising the profits from lowering wage costs.

The banner seen in the anti capitalist demonstration in Seattle earlier this year said it all “Social welfare not corporate welfare.”