C CITY DESK
It’s time to stop talking about peanuts – it’s all about real money.
This week the brand new shiny London Hospital opened, amid a great fanfare. A mighty fine hospital it is too; all £1000,000,000’s worth. I put all the noughts in because ‘£one billion sounds so much more comfortable than it really is.
For the life of me, I don’t see how it can cost so much. In fact it didn’t – it cost nothing at all. We might as well have another 200 London Hospitals and all will be well.
There is a catch – Private Finance Initiative.
We ‘bought’ the hospital on Hire Purchase, ‘buy now, pay later’
A finance company built the hospital; we pay £100, 000,000 a year (that’s £100 million) in rent for 30 years. So, in 30 years’ time the new London Hospital will have cost us £3000,000,000 (£3 billion). Only it will have cost us even more – we never get to own the Hospital, at the end of 30 years we have to negotiate with the company about its future.
Commonly there is a service agreement, which means we have to pay them for the maintenance and repairs.
As a result, the government which can borrow money at 2% right now is paying 10% a year for something which we will never own.
The new London Hospital can never fail – we can’t go bankrupt or refuse to pay, so if the ‘trust’ can’t pay the bills it merges with the next door trust and bankrupts that, just like in South London.
If it doesn’t fail, it is because it is able to steal work from neighbouring trusts who can’t compete.
Meanwhile, the PFI agreements are like a license to print money for the finance company; they are frequently bought and sold on the market, so the owner next year may not be this years.
The answer is pretty simple – no more PFI, we can do it cheaper ourselves.
Take over the existing PFI agreements with compensation at a flat rate of interest we can afford to pay (2.5% seems attractive at today’s market rates) together with an offer to buy out their capital, today.
We can. When the banks went bust and needed £1.25 Trillion we found it all right.
And that’s too many noughts even for me.
(a don’t stop till you drop production)