D OC donaloc at peterquinn.com
Tue Sep 24 04:11:22 MDT 2002

Michael >The proliferation of so-called public private partnerships is the
insidious method by which private interests take hold of state assets and
start pumping them for profit backed by state guarantees.

Mark: This may be true but I read an article I think in the FT last
find it now--which suggested that the real reason for Gordon brown
obsessing about private-finance schemes is because he wants to get some
major public assets off the books, before major (state-funded) investment
programmes begin: these include the London Underground, the railways and
others things. The reason is because otherwise Britain will run foul of the
European Central Bank's  public debt requirements. The ECB has got a
straitjacket on EU public spending. Britain still spends about 8% less GNP
on the public sector than the EU average and has decades of underinvestment
in public services because of Tory mismanagement, to make good. So we
cannot join the Euro, stick to the ECB rules, and also make the
multibillion pound public sector investments needed without finagling the
books; by getting the assets nominally out of the state sector, and
financing them thru bonds or similar methods, the real scale of increased
public sector spending can be cosmetically disguised and the appearance of
fiscal prudence maintained. That's one theory anyhow.

ECB rules do indeed make implications on overall Governmental debt (as a %
of GDP). As I said previously New Labour has a focus on fiscal
'responsibility' and they went further and adopted Departmental Expenditure
Limits. PPPs (more accurately PFI = DBFO Private Sector Design, Build,
Finance and Operated provisions) are classified as 'off-balance' sheet and
do not contribute to either Departmental total expenditures or to
resource-based budgeting accounts. This gives some 'financial' rationale for
PFIs which Civil Servants can understand. There is also an 'economic'
rationale based on a 'value-for-money' argument as they reckon Private
Sector companies can deliver at such lower costs that the Public Purse has
to pay out less. However, a recent report conducted by the British
Construction Industry Federation identified that the bulk of savings
produced were in reductions in 'staff costs'.

Should the British Treasury desire, it is possible to bypass EU legislation
through increasing taxation - that way there would be no increase to the
debt burden. The alternative strategy is to make PPPs as unattractive as
possible, through wage equity guarantees, rights to union representation,
the requirement for open-book accounting and compulsory Public Sector Bids
(as opposed to comparitors). Someone I know had a conversation with a PFI
consortium member who said that they were making 25-30% profit on all jobs
and that if it was the 5% which is being touted, no-one in the Private
Sector would be interested. Indeed, it appears that Private Sector interest
in PFIs mightn't be as great as New Labour leadership desire.

I have some information that Downing Street is busying itself orchestrating
Private Sector Consortia which will be able to drive forward much wider
improvements (?) throughout the Public Sectors. The degree of interaction
between Downing Street and these interests is surprising and may reflect
deeper levels of interaction. One thing is apparent though, that without
such 'hands on' intervention in the Private Sector and attractive returns,
PPPs will find it difficult to attract Private Sector investors - this, I
believe, is the Achilles Heel of the PFI programme.


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