Corruption and the Public Finance Initiative

[John Simkin]

When Tony Blair became leader of the Labour Party he decided he no longer wanted to be under the control of its membership and of the trade unions. He therefore set about redistributing power within the organization. Members lost all policy making power and understandably large numbers left the party. The trade unions also began to reduce its donations. Blair therefore had to get his money from other sources. The man he employed to do this was Lord Levy. He was the man who originally provided him with the £7m in March 1994. However, there was a limit that the Jewish lobby could provide in exchange for a pro-Israel foreign policy. Blair/Levy was forced to resort to other donors. Of course, they all wanted back something in return.

The wealthy are united in their hostility to paying high-rates of tax. Therefore, Blair/Brown kept the top-rate of tax of 40% that they inherited from the Conservative government. That in itself was the lowest it had been for nearly 100 years. However, they wanted more than this in order to give money to “New Labour”. Much of the money given to the Conservative Party came from businessmen born abroad but living in the UK. Brown had promised in opposition to remove these loopholes. In exchange for donations this policy was dropped and the loopholes remained.

The other major source of funding for the Thatcher/Major governments came from companies who had been awarded Public Finance Initiative (PFI) and privatization contracts. PFI (introduced by John Major in 1994) and privatization had been condemned by Blair/Brown in opposition. However, once in power, they continued with these policies and as a result these companies switched their funding to the New Labour government. As a result these companies were then awarded these contracts.

What is PFI? It was first introduced by the John Major government in 1994. PFI specifies a method to provide financial support for "Public-Private Partnerships" (PPPs) between the public and private sectors. This has now been adopted by parts of Canada, France, Spain, the Netherlands, Portugal, Ireland, Norway, Finland, Australia, Japan, Malaysia, the United States (reference the Trans Texas Corridor highway development project and Singapore (amongst others) as part of a wider reform program for the delivery of public services which is driven by the WTO, IMF & World Bank as a part of their 'deregulation' and privatization drive.

These projects aim to deliver all kinds of works for the public sector, together with the provision of associated operational services. In return, the private sector receives payment, above the price that the Public Sector could have achieved the work, linked to its performance in meeting agreed standards of provision. However, as we have found in the UK, these standards are meaningless.

PFI is used in central and local government. In the case of projects procured by local government authorities, the capital element of the funding enabling the local authority to pay the private sector for these projects is given by central government in the form of what are known as PFI "credits". The loans are paid back over the period of the PFI scheme by the service provider. The local authority then procures a partner to carry out the scheme and transfers detailed control, and in theory the risk, in the project to the partner. The cost of this borrowing as a result is higher than normal government borrowing but does not all appear as borrowing in public accounts.

Not only does the system encourage corruption, it borrows money that will have to be paid back by future generations. It is not clear where they will be getting the money from to build their schools, hospitals, etc.

A report published this week shows that current PFI contracts show that future governments will have to pay back £170 billion by 2032 to banks and private entrepreneurs for more than 800 schemes for new hospitals, schools and prisons. In over a third of these contracts, there were only two bidders. These companies work together in this. For example, their pair up, to get two different contracts. In one case they put in an outrageously high bid and the other company gets the contract. In the second case, the other company puts in the high bid and you get the contract.