The case against PFI

UNISON believes there are a number of reasons for opposing PFI:

Reason 1. The public service ethos

Public services are not like other commodities. They exist to support the social, economic and environmental well being of communities and where a community decides that the market alone cannot provide a particular activity. The state then assumes some degree of responsibility for the service: by funding the service or by regulating for its quality and delivery. In a post election Mori poll for UNISON over 80% of people rejected the use of private companies to run public services.

Reason 2: PFI is driven by public finances not public services

PFI was conceived by a Conservative government that had lost control of public borrowing. The current government's desire to keep borrowing off the public sector balance sheet remains the main driver for PFI. Public authorities know that PFI is the only way to get finance, which partly explains the unspent millions in the public coffers. The Government can afford to pay for the entire PFI programme from its reserves.

Reason 3: PFI costs more

PFI schemes cost much more than conventionally funded projects. The private sector borrows at higher rates than the public sector since governments can borrow at much lower rates. Audit Scotland have calculated these costs as adding £0.2 - £0.3 million each year for every £10 million invested. They have high set up costs, due to lengthy negotiations involving expensive city lawyers and consultants employed by both sides. The first 15 NHS trust hospitals spent £45 million on advisers an average of 4% of the capital value. The private sector demands high returns and despite very low risks, profits from PFI are extremely high.

There is a growing body of evidence that PFI projects escalate both in scale and cost. These are not simple cases of costs going up for a project but reflect the very nature of PFI itself. The higher costs inevitably lead to an affordability gap for the procuring authority that is often met by reductions in services and capacity, subsidies from other parts of public authority budgets and pressures on labour costs. A recent article in the British Medical Journal found that there were 20% cuts in staffing levels in PFI hospitals.

Reason 4: PFI profits from people

UNISON has conducted research into the impact of contracting out in local government on the terms and conditions of the workforce. UNISON's survey found evidence of a two-tier workforce, something commented on by both the Treasury and Health committees of the House of commons.

• Over 90% of those contacted said pay levels for new employees were worse that for transferred staff.
• 1 in 5 of contracts showed a difference in the standard working week
• Pensions are a high value item for employees and a high cost item for contractors and public authorities.
• Guidance from government means that successful contractors are obliged to offer a comparable pension scheme to transferred employees. Our research could not find a single comparable scheme open to new employees. There was either no scheme or else it was inferior and often the contractor made no contribution whatever.
• There is inevitably a gender impact with women increasingly bearing the brunt of these new privatisations, just as they did under CCT and market testing. PFI contracts are at least 25 years long. As the first tier gradually disappears and only those staff on private sector terms and conditions are left, there will be a whole class of women workers providing public services who will have no occupational pensions and who will be working on inferior terms and conditions.

Reason 5: PFI goes wrong

There have been many claims that the private sector is more efficient than the public sector but there is no evidence offered to support this. Now that PFI schemes are coming on stream there is growing evidence that they are not producing the anticipated improvements in delivery to time or cost nor are they meeting the quality standards expected. After all, many of the same companies that were involved in pre-PFI cost and time overruns are also building PFI schemes.

Reason 6: PFI does not give 'value for money'

For many PFI projects, it is only the transferred risks that make the project value for money. Research for UNISON by Professor Allyson Pollock, looking at schools and hospitals, shows that the calculations of risk are arbitrary and unreliable. The National Audit Office has called the value for money calculation "pseudo-scientific mumbo jumbo where the financial modelling takes over from thinking".

Reason 7: Private companies make unacceptable profits

As well as the huge returns made by private companies they are refinancing their deals and yielding huge profits at the expense of the public sector. The principal risks transferred to the private sector in PFI projects are those met during the construction phase, risks that disappear at an early stage of the project. Despite this, the risks are treated as if they were spread over the whole length of the contract and it is therefore very profitable for contractors to refinance projects. At Fazakerley prison the National Audit Office reported that the net result is that the rate of return for the initial shareholders has tripled from 12.8% at the start to 39%.

There is a growing use of the Private Finance Initiative or Public Private Partnerships to allow private companies to raise money for major public service projects. But it costs more for private companies to raise money than it would for the government or local government. The only way private companies will make their money back is to cut either services or staffing costs. That means public service workers and users pay the real costs.