The Wasteland
The Wasteland, where debt is the natural state
Boarded up shops on the high street, grass growing through the paving stones, unrepaired potholed roads and the public lavatory is closed. The swimming pool is closed, so is the library, there are no posters for upcoming arts and music events, the arts centre has been closed, there's a padlock on the play park gate and the youth club has closed. The Meals on Wheels van doesn't arrive anymore and the classroom helpers are gone from the primary school classrooms. The Citizens' Advice Centre is closed and so is the Visitor Information Centre, only the Job Centre is open for business.
There are no jobs on offer, the job shop is just a place you go, to get processed. They are currently processing all the labour shed from the local authority. Across the country the pattern is repeated, 140,000 jobs have gone and they wont be coming back any time soon as £2.4 billion has disappeared from the central government grant.
The Council are cutting back on non-essentail services and are waiting for an army of volunteers to step forward to fill the void left by the Cuts. This community is in a void, a soulless wasteland, there's nothing to volunteer for here, nothing happens here. Those with talents and skills have taken their non-essential services elsewhere, they wont be sitting around waiting for something to turn up.
This is the new politics, the politics of austerity, the politics of the wasteland. There'll be no more icing on your cake, unless you can afford it, or unless you can find a bank to lend you the money to buy some.
Ah, but wasn't that how we got here in the first place? Encouraging people to buy things they couldn't afford because the clever people skewed the economy towards consumption, that could only be sustained by debt.
Now, everyone thinks debt is the natural state, it's OK as long as you don't have too much debt, as long as, you can manage the debt, wrap it up in brown paper and call it something else and sell it to an Icelandic bank, for English local authorities to invest in....
Ah, but wasn't that how we got here, in the wasteland.
The Banking Crisis
'Too big headed to ever consider failure'.
We were told that the banks were 'too big to fail' by our political masters as they excused themselves for making the biggest welfare payment of all time to a lame banking sector. More properly they should have said 'too big headed to ever consider failure'. Since arrogance was a key player in the banking crisis, that and an ability to persuade the Blair Brown Matrix they were all geniuses.
To date the banks have received over £1 trillion pounds of cheap money from the State. The economic recession that their ruinous behaviour precipitated has cost the economy another £1 trillion in lost output.
And have the banks changed their behaviour?
No. All of the major banks still have vast sums tied up in Shadow Banking activities like derivative trading. They are still not lending to companies for investment purposes, in fact, they never did. Three quarters of all bank lending went to real estate speculation and still does.
Banks are still paying their traders, analysts and fund managers excessively. Bonuses have been reduced but base pay has risen to compensate for the loss and to make the regulator think that the so-called 'bonus culture' is on the wane.
Bankers are talented people
Supporters of the banking community, like Mayor Boris the Buffoon, believe that they have such a rare talent that Britain would be washed up without them. Indeed only a rare talent would lend 50% more than it possessed.
A rare talent indeed that allows itself to be duped by its chums. Major bank failures were brought about because banks bought toxic debt from other banks without actually knowing the value of what they had bought. (see The Big Idea further down the page) They simply paid a price for a promise of future returns without stopping to ponder who was going to provide those returns if the underlying assets turned out to be worthless.
Yes, a very rare talent that sets up a system of payments for bankers in which the reward is paid before any returns are seen. It's like walking into a casino and every bet you place pays out whether you win or not. Of course, if you keep making rubbish bets they'll stop funding your recklessness but the law of large numbers says you probably wont lose every time the wheel spins. Unless your name is Nick Leeson.
What about the bankers marvelous social contribution?
Job Creation: 10 years ago the banks employed 1 million in the UK, today they still employ 1 million people. Tax contribution: in the six years from 2002 to 2008 the banks paid £193 billion, manufacturing paid four times more. Investment contribution: in the last ten years only one quarter of bank lending has gone to business activity.
If all the bankers left for Basel tomorrow the only outcome would be that Boris the Buffoon would have to start paying for his own lunch. Outside of the masonic lodges of the City of London no one would even know they'd snaked off.
The Myth of Regulatory Failure
The regulatory framework in the US and Britain has been described as loose and hands-off and stands accused of failing to curtail the gambling antics of the banks. Nonsense.
In the first instance, regulation was set up as a PR exercise only by Governments. When those Governments became aware that something was wrong, their regulators didn't have the expertise to discover what was going on in the banks. The banks were employing mathematicians with complex computer models to gamble on anything that moved; they even gambled on changes in the cube root of inter-bank interest rates, totally bizarre, and totally beyond the grasp of your average regulator.
The Bank of England itself spent £80 million in 2008 on consultants in an attempt to comprehend how casino banking worked or didn't work as it turned out.
What started the crisis?
In 2004 the US Securities and Exchange Commission lifted regulation limiting the extent banks could 'leverage' their lending. This gave banks the green light to go crazy. In Britain the regulators were unconcerned with 'leverage', whatever it was.
Chinese money played a big part in the failure of some of the biggest names in investment banking. In the early part of decade a surplus of Chinese cash was sloshing around in western capital markets. The easiest way to turn this money into more money was to lend it on property.
The wars in Iraq and Afghanistan also played a part by injecting vast sums of liquidity into the markets, similar to quantitative easing before quantitative easing.
The Bush Government was keen to promote home ownership for everyone, whether they could afford it or not. In the frenzy to lend credit worthiness became inconsequential. Low-doc mortgages became No-doc mortgages, and even Ninja mortgages became common. (Ninja. No job, No Income, Or Assets).
In Britain the mania for home-ownership had become hysterical. The dodgy practice of self-certification was all the rage and so keen were the banks to lend they were giving loans in multiples of five times earnings.
This lending was describe as sub-prime and sub-prime lenders were starting to go bust as early as mid-2005, with borrowers defaulting in droves.
Then the Talent Kicked In
These early signs that all might not be so rosy in the mortgage market posed a big problem for banks holding some very high risk bits of paper.
What to do with all the toxic debt from this reckless lending became the problem of the moment.
The Big Idea
Take the bad debt, mix it up with some good debt, get a Ratings Agency (that you pay, to say it's all good) and then sell it - end of problem.
Not quite, some bigger fish in the sub-prime lending game started to fall over. This caused market jitters, holders of the recently acquired toxic packages started to question their real value, the valuers are brought in and are mystified. The valuation costs $10 million and its report can be summed up in a few words "These financial assets are worth less than you imagined" and having too much imagination is dangerous.
One day in August 2007 a French bank (BNP Paribus) was having a cash flow problem and needed to lend some funds from other banks but no one was lending, oh, dear. Coincidently, a very large US investment bank (Bear Stearns) needed some money too, no one wanted to lend. Was something amiss here, Federal regulators scratched their heads?
The Fed had a brain wave and cuts interest rates by a little bit at first and then goes completely mad and takes them down to next to nothing - great, free money for the banks. The same pattern was followed here or did we lead the way in the great tax payer give away?
Under New Management but business as usual.
2008 arrives and Northern Rock is taken into public ownership, J P Morgan Chase snaps up Bear Stearns for $10 a share, 2 months before they were trading for $172 - more talent at work.
Later in the year Lehman fails and doesn't get rescued. Bank of America buys Merrill Lynch for $50b. AIG gets bailed out by the Fed, $80 billion.
In Britain Bradford and Bingley gets nationalized, snap snap Santander gets the best bit for a song. Snap, Lloyds TSB gets HBOS. RBS and other banks in trouble get a £64 billion hand out, beyond the public gaze the Government kicked in another £800 billion.
Elsewhere, Iceland went bust, as did Hungary (but no one noticed), now that takes real talent Boris! More recently we have seen Greece and Ireland in trouble, Spain or Portugal are next.
Another Big Idea: The Troubled Assets Relief Plan
Not content with being caught out selling worthless assets some talented failed ex-bankers in the US Fed came up with the idea of re-valuing the toxic debt and selling it again? Mercifully, there were no takers, all the real talent was playing golf.
The City of London Corportion
The City of London Corportion is a local authority like no other, it serves no other purpose but to act as lobbyist on behalf of the financial sector in the 'Square Mile'.
Interestingly, The City only has 9000 residents. How on earth do they manage to pay the Council Tax?
Quantitative Easing
Translation
Quantitative Easing is the means by which a failed political class attempts to ensure that a reckless financial community (reckless with other peoples' money) can continue to maintain its hedonistic lifestyle at the expense of the general populace.
Expert opinon - don't bother
If you want to know what financial journalists think QE means you can view hundreds of explanation on the Internet and watch videos with graphics. We recommend that you spend your time otherwise. For instance, we recommend that you turn your Real saved money into something a bit more tangible than a promise to pay the bearer. Why? Because when all that funny easing money starts getting mixed up with your Real money you'll be left wondering why you bothered working hard for forty years.
Advice
Buy gold, buy property, buy bake beans, buy anything - get out of money!
What do we know?
All we know about QE is that no one knows if it works. It has been tried across the globe variously, most famously in Japan but even after that experiment they don't know if it worked or not - brilliant.
We also know that governments do not pursue a course of QE until they have taken interest rates as low as can before they become meaningless and then they start printing money - and hope.
It's no coincidence that hope and hopelessness have a common root.
The Evidence
The evidence is now legend, banks are not trustworthy intermediaries, so why does this Government insist on asking them to oil the wheels of recovery? Why not go straight to the source; to the companies desperate for funds and to the citizens desperate to buy properties?
Citizens throughout this land are having their homes repossessed, despite Government promises that aid would be provided. Businesses along every town and city highstreet are closing, being starved of funds by the banks. When will this Government recognise the woeful performance of the banks?
Solution
Stop treating banks as a special case, if they are useless let them go to the wall. How worse off could the citizens that trusted the banks be than they already are? Let's face it, it's time the banking community took an extraordinay slap in the face. JobCentre Plus could do something useful for a change and arm unemployed citizens with cans of black paint - their mission, to travel throughout this land and black out every instance of a Bradford & Bingley sign they encounter and then move on to RBS, Lloyds, etc, Why? Then citizens would be able to walk into what they think is a bank, give over their money to some anonymous business, trust them implicitly - no questions asked, Albanian style.
Historical conclusion
The peasants danced when the Magna Carta was signed, they did reels and jigs when a flea emancipated them from the slavery of feudelism, they even had a little get together when someone said there's been a Glorious Revolution. After that, there wasn't much to celebrate but they were always on the look out. Enock Powell may have cried the night India got its independence but the peasants didn't notice. Enoch, bless him, was a man a hundred years after his time. Fact is, the peasants have had enough, Enoch's poetry holds no resonance with the peasantry. They did not believe in Empire and talk of rivers of blood.
Your average peasant today wants to own his property without obligation to any liege lord, we can all hope, and we know how useless that is.
All modern economies are walking a tight rope of debt management. That management recides with pin stripped gangsters who's Raison d'être is the maintenance of debt. The British Prime Minister spouts waffle about 'us living within our means' never realising that the cultural imperative is now contrary to this wisdom.
Private Finance Initiative
The Private Finance Initiative is a large example of government attempting to improve the social infrastructure now and pay for it later, a lot later, so far in the future in fact, that the debt doesn't appear on the books and we can only guess how much the next generations will have to pay.
Summary
PFI is not about 'rolling back the State' rather it's about reconfiguring the relationship between the public and private sectors. One consequence of the proliferation of PFI projects has been to blur the distinction between public and private and, indeed, has been to erode the certainties surrounding public provision of goods and services. The old notion that the State provides the services that the private sector is unwilling to is shot.... for a fee, the private sector will provide. However, and here's the punch line, it's still the State that's providing.
The Grundrisse
The Grundrisse - before Karl Marx wrote Das Kapital he set out at length the object his study in a work called the Grundrisse, groundwork. This work was written at a time of financial crisis for capitalism, in the 1860s and its main focus was the links between the State and private capital in trouble.
Will Hutton, head of the Work Foundation, says that with PFI, ‘the private sector has become central government’s principal means of geeing up what it sees as underperforming public services’
Introduction
The PFI is one of a range of government policies designed to increase private sector involvement in the provision of public services. And your starter for ten, name another one? The fact is that 'the PFI' is the range, lots of companies, lots of projects, lots of sticky fingers in the money jar but there is no 'range of policies'.
When the wizards of Whitehall dreamt up the PPP, that is, the Public Private Partnership idea, (yes, let's call it an idea), perhaps they thought that it would breed all manner of innovative ways of paying for things that the State couldn't afford.
Well, all it ever begat was 'the PFI' - count your blessings it was an only child.
This will commonly involve the private sector supplying a new major capital asset, such as a hospital or a school, on a design, build, finance and operate basis.
What is the PFI ?
It's just like taking out an overly expensive interest only mortgage. PFI is about smoke and mirrors, slight of hand, all manner of conjuring tricks - especially the one where the rabbit goes missing before the conjur0r can pull it out of the top hat.
The 'missing rabbit' here is the title deeds to the asset at the end of the lease. Under some PFI contracts the asset, i.e. a hospital or school becomes the property of contracting consortium. So the State pays a rental on the asset for 25 - 40 years and then ends up with nothing to show for it.
However, it's not only the title deeds that go missing, so do the accounts of the Nation's long-term indebtedness to hundreds of private consortia that the Government has done deals with. Someone described the process as akin to Enron-style off-balance sheet accounting. The use of PFI schemes therefore give the appearance that Government Departments are keeping within annual spending limits.
Today’s capital investment thus becomes tomorrow’s current spending.
Public Private Partnerships
The term PPP is confusing and unhelpful. Nearly all commentators mention PPP/PFI and then go on to discuss PFI without clarifing what they mean by PPP or to provide any examples.
Clearly, or perhaps not so clearly, these commentators, reporters and the like, are assuming that their readers know what the distinction between PPP and PFI is. Alternatively, these commentators may not actually be very clear themselves what the distinction is?
PPP must exist because it has a PPP Policy Team which sits withinInfrastructure UK, which sits within HM Treasury.
(Maybe it's a bit like the Ministry of Silly Walks, doesn't exist but people still have silly walks, which must be noted.)
These agencies provide the wrapping for the PPP idea, for the very flaky rationale that the private sector can deliver public services best, i.e. better quality, value for money and greater efficiency.
Infrastructure UK (IUK) advises government on the long-term infrastructure needs of the UK and provides commercial expertise to support major projects and programmes.
Really, was it they who advised on the PFI scheme currently holding up traffic on the M25 for the next several years. Good deal, struck at the hight of the credit crisis - paying well over the odds for the funds, tut, tut.
Flavours of PFI
HM Treasury (1993) distinguished three types of PFI project:
• Financially free-standing projects where the outlay can be recouped through user charges such as the Skye Bridge.
• Joint ventures where the public sector provides the PFI contractor with a subsidy to reflect the social benefits of a project not reflected in cash flow, such as the Docklands Light Railway extension to Lewisham, the Manchester Metrolink and the Channel Tunnel Rail Link.
• Services sold to the public sector such as those provided by Bridgend Prison, Design, Build, Finance and Operate (DBFO) road schemes and new trains for London Underground’s Northern Line.The last of these is the one that most people think of when the PFI is discussed.
Political Ideology
Our leaders are interested in PFI for political reasons. Political elites no longer have much faith in the ability of the state machinery to deliver. This tends to generate a self-fulfilling dynamic of poor quality and inefficient operations - but it also prompts the elite to search for solutions outside of the state, in the private sector. Turning to the market is often seen as a way of addressing the problem of political legitimacy. Rubbish health service? Bring in the private sector. Falling educationa l standards? Bring in the private sector.
In addition to this, PFI fulfils a traditional role for the state by giving support to the private sector.
PFI follows in the post-Keynesian tradition of appearing to limit the economic role of the state, while business dependency on the state increases. (more smoke and mirrors?)
Throughout the 250 years of capitalism, private capital has needed the support of state intervention. Usually, this has involved the state creating institutions or performing the social functions necessary to maintain capitalist relations. The state has also passed laws that are inimical to the short-term interests of particular capitalists, but necessary in the longer-term interests of capitalism itself - for example, health and safety legislation.
History
Norman Lamont 1992
"I also want to ensure that sensible investment decisions are taken whenever the opportunity arises." And what's the interest rate today Mr Lamont?
The Private Finance Initiative (PFI) was announced in the Tory 1992 Autumn Statement and continues to this day. However, nothing much happened until 1997.
In 1993 Tory MP David Willetts wrote a pamphlet called The Opportunities for Private Funding in the NHS, which proposed using Private Finance Initiatives (PFIs) and other commercial mechanisms to provide health services in the UK. Conservative ministers thought Willetts’s proposals too radical. They were consigned to the shelf until 1997, when the New Labour Government put them into action.
As an interesting aside, the reader may care to ponder that Willetts's pamphlet was paid for by BUPA.
Willetts's Tory chums may not have liked the idea but they got busy changing the Treasury rules, that previously had kept private money out of public projects, laying the groundwork for what was to come. By 1998 all the paving legislation was in place.
PFI projects signed to date have committed the Government to a stream of revenue payments to private sector contractors between 2000/01 and 2025/26 of almost £100 billion. As at 1 September 2001 there had been almost 450 PFI deals signed with a total capital value of £20 billion.
Hospitals - first among many...
Cumberland Infirmary in Carlisle, the first hospital completed under the (PFI) system. Opened in June 2000 by Tony Blair and hailed as a flagship, the £87 million Infirmary has 442 beds and acres of glass, all paid for privately and leased back to the NHS for 45 years.
Over a hundred PFI hospitals have been built over the last ten years.
Conflict of Interest
The ethos and aims of a school or hospital, in terms of their core functions, educating and healing are not those of the PFI managing agents. The BMA and teaching unions have been vocal in their criticism of PFI schemes.
And elsewhere, where consideration of the public interest should weigh heavily in the operation but instead the aims of the private sector operator predominate - sluggish delivery of services, e.g. six weeks to hang a notice board at Norfolk Hospital.
NHS Trusts will be expected to make cuts but they will not be able to cut payments to their PFI partners. Investors and contractors will naturally seek to maximise their profit margins, at the expense of the Trusts.
Criticism of the Scheme
Critics were quick to suggest that PFI funding for the NHS was not just bad news financially – because the Government was forced to pay higher interest rates to PFI consortiums than it would have paid to borrow on the open market – but that it was causing financial shortages for cash-strapped primary care trusts (PCTs), that clinical care was being compromised because funding considerations were driving medical conditions, that future generations were being thrown into hock, and that the NHS was being forced to sell off its land to pay for the new builds. And, perhaps most trenchantly, that the whole thing was a con: that private money had been chosen, despite the cost to the country, simply because it could be hidden in the Government’s books, concealing the fact that national borrowing had increased massively, and perhaps unsustainably.
Straitjacket of provision
“The next 30 years are going to show a revolution in health care – yet we will be committed to services designed in the Nineties and early Noughties."
The New Labour View
"PFI or Bust - Plan B, what plan B, there was only ever going to be PFI to replace Britain's Victorian hospitals."
Standard & Poor’s
Risk at the start of a PFI project BBB and at the service delivery phase, AAA.
The money grubber's code
AAA - highest quality
AA - high quality / very strong
A - upper medium grade / strong
BBB - medium grade
BB - somewhat speculative
B - speculative
CCC - highly speculative
CC - most speculative
C - imminent default
D - default (Greece)
Risk and Borrowing Costs
The Treasury argument in flavour of PFI schemes is that the private contractor bears the risk of financing the project but where substantial public assets are at risk it will always remain the case that the State or local authority will be the guarantor of the last resort. Ask Transport for London or reflect on the National Insurance Recording System, National Air Traffic Service, the Passport Agency and Royal Armouries - all cases where, despite the contract terms, State bail outs were called for.
In practice, the main risks for PFI contrators are at the beginning of projects, at the build stage, the risk reduces substantially throughout the managing phase. This reducing risk factor actually allows companies with a high profile in the PFI market, i.e. with lots of different contracts, to gain access to cheaper credit because of the stability of future earnings.
Further, there is evidence that companies engaged in major PFI infrastructure projects factor in an additional margin for cost over-runs. For non-PFI schemes 7% would be the norm but some reason the norm for PFI schemes is 12%.
Most importantly, the high risk factor at the start of projects explains why borrowing is more expensive for the private sector with a mediocre medium rating as opposed to the State with its AAA rating.
Wait, there's more..... Sharing the benefits of refinancing.
Now, the sharp witted financial types among our readers will have noticed by now that the coincidence of declining risk and rising credit rating presents an opportunity to do some refinancing.
The Public Accounts Committee issued a strongly critical report on the refinancing of the Fazakerley prison PFI contract, which enabled contractors Group 4/Carillion to obtain a windfall profit of £10.7m. The Prison Service very unwisely accepted a reverse risk transfer, in
return for a rebate of just £1m. In some instances, PFI contract refinancing increased contractors’ profits by as much as 80%.Serco, operating the Norfolk and Norwich Hospital made itself a tidy £4.5 million from refinancing, meanwhile the Health Trust is squarely in the red.
Unsurprisingly the PFI rules do not stipulate that contractors have to share refinancing windfalls with their public partners. Strangely, the Treasury did note the oportunity for profits to be made by contrators through refinancing and thought it might be nice if these might be shared equitably.
New deals now do stipulate that the public sector should gain from refinancing but this varies from 70/30 to 50/50, in favour of the contrator.
Special purpose vehicles - SPVs
Special purpose vehicles (SPV) are companies created for a particular purpose and often have no assets. For PFI contracts, these SPVs are created to bid for the contracts and they are legally the contractor that the public body deals with. The shareholders in the SPV are the construction and service contractors, plus, perhaps, the project investors.
SPVs really are 'special purpose' since they allow companies not to show their own financial involvement on their own balance sheets and to walk away when things go wrong.
At the Norfolk and Norwich for instance, Octagon Healthcare is running the show but is owned by Barclays UK Infrastructure Fund, 3i Group, Innisfree PFI Fund, John Laing Investments, and Serco Investments - none of these is a majority share holder and we all know why that is, don't we.
Secondary Markets and Disposals...
Over the past ten years the private sector has been playing pass the parcel with PFI assets, who owns what and for how long is simply unknown - except by a very special few. When PFI contracts are handed out citizens might be forgiven for hoping that a part of the selection process will include the contractor's expertise in the provision of a particular service. However, that can't be guarenteed in the PFI market where the initial contractor is not tied to or obligated in any sense to continue with a project to the end of its term.
What a Waste... Value for Money?
The Treasury has come up with a remarkable new definition of value for money. Since the credit crunch, the cost of private finance for public infrastructure has become even more expensive; but rather than reviewing PFI projects the Treasury has judged them value for money in the context of stimulating the economy.
Government is pushing ahead with a massive increase in these projects, particularly for waste, and has allocated £2bn to seed dozens of (mostly) giant waste incinerators. The National Audit Office reported in July that the costs of the Greater Manchester Waste PFI will increase by 12 per cent per year under the new regime. These extra costs will be met by local taxpayers and will be classed as "off balance-sheet" debt. In a separate report to a House of Lords inquiry last March, the NAO warned that rigid long-term PFI contracts "could have an adverse impact on the budgets available to public authorities for other, non-PFI, expenditure", and that "essential public services in future years [must not be] unduly constrained or jeopardised by such commitments".
The Unions' Position
The main concerns can be summarized as follows; it's not private money that is provided for public services that's the problem but the conditions applied to such investment and the consequences of such investment in
relation to the quality of public service provision, the employment conditions of the workforce and the preservation of the public service ethos. (see side note)PFI Duds
Metronet
The most spectacular private finance initiative failure was the collapse of Metronet in 2007. The deal between Metronet, Tube Lines and Transport for London (TfL) was put together in 2003 to upgrade London's creaking Underground network. Within five years, the Metronet consortium collapsed, costing taxpayers £2bn as its functions were taken over by TfL. Earlier this year Tube Lines was also bought out by TfL.
HM Revenue & Customs estate
The PAC* concluded in April that the PFI deal covering ownership and management of 60 per cent of the HMRC's estate is also failing to deliver value for money. The 20-year deal signed by Mapeley Steps Contractor in 2001 has cost the taxpayer 20 per cent more than expected so far, the PAC said. (PCA = Public Accounts Committee)
NHS
Latest estimates suggest that the NHS faces a £65bn bill for 103 new PFI hospitals with an estimated value of £11.3bn at the time they were built. The Government says the schemes provide value for money. But some trusts are now handing over more than 10 per cent of their annual turnover.
Housing
More than four-fifths of local authorities' 25 PFI housing projects are over budget, the National Audit Office said in June. Nearly half are running at more than twice the anticipated cost. And the average delay is two-and-a-half years.
Airtanker Ltd
The Ministry of Defence's biggest ever private finance initiative (PFI) is "inappropriate" and not proving value for taxpayers' money, according MPs on the Public Accounts Committee (PAC).
The £10.5bn, 27-year Future Strategic Tanker Aircraft (FSTA) programme – which is to supply air-to-air refuelling and passenger transport planes – is just the latest of a string of PFI deals to attract criticism.
The most serious charge levelled by the PAC, chaired by Labour's Margaret Hodge, is that the MoD should have grasped that a PFI may be suitable for projects with a clear specification – such as building a school or a hospital – but it does not work well with less predictable plans likely to be changed along the way. "Using PFI to procure the FTSA project was inappropriate and has not secured value for money," Ms Hodge said.
Under the deal for 14 modified Airbus A330s, AirTanker Ltd, a consortium of Babcock, Cobham, Rolls-Royce, Thales and EADS, continues to own the aircraft but is contracted to provide to the military when required. The group is also contracted to service and maintain them.
There were signs of trouble with the PFI structure from the beginning. Although the MoD started the procurement in 1999, the deal negotiations took twice as long as anticipated and the contract was not signed until March 2008. Delivery is also running behind schedule – when the first of the planes is delivered next year it will be five and a half years late. Even then they may not be equipped to fly into danger zones such as Afghanistan.
Even before the final FSTA deal was agreed, the contract was proving too inflexible. It is "simply astonishing" that the MoD did not decide until 2006 that the new aircraft should be able to fly into high-threat environments such as Afghanistan, says the PAC. Four years later the decision to fit the necessary protective equipment to the aircraft has still not be taken, because of the cost implication for the MoD of changing the original contract specification. If the decision to armour the 14 planes is taken, it could add hundreds of millions of pounds to the bill, and delay the scheme still further. In the meantime, the military is relying on old Tristars and VC10s, some of them dating back to the 1960s.
Trident Replacement
And the contract goes to Ahmadinejad & Partners, who will own the sub's and let us have 'em "as required" to launch against middle-eastern lunatics.
Conclusion
If PFI shows anything it shows the vacuity of late capitalism at work. Keynes suggested State financed job creation schemes to keep the show on the road. PFI is just a variation of Keynes's idea of burying bottles filled with money and paying workers to dig them up again.
Without the PFI schemes many of the new hospitals, schools and other infrastructure put in place over the last ten years wouldn't exist. There is an argument that what has ever been done under PFI could have been done without it. All we can say is perhaps since no alternative was put forward and would the electorate have stood for the obvious associated debt rather than one held in store for future generations.
Clearly, PFI is a dogs dinner and the City spivs are busy enjoying the feast but there are signs that the 'piss up' will come to an end. PFI schemes are coming under increasing scrutiny and as the regulatory arrangements are reshaped the wide boys and spivs will seek to turn a penny elsewhere.
Mis-selling, another great service from the banks: Payment Protection Insurance
Self employed people were sold PPI cover against the risk of unemployment and borrowers were falsely persuaded that it was a condition of receiving loans, they were not told that earlier illness could prevent payouts. Banks rarely paid out.
Now the banks are stalling for time, preferring to pay lawyers rather than their policyholders and you can expect the lawyers to make the legal process as long winded as possible. Compensating the victims of their payment protection insurance (PPI) racket is not part of their business plan. They do however have a section detailing delaying tactics.
The Financial Ombudsman Service, the statutory watchdog, upheld just over one in three complaints from customers about motor insurance last year – and less than half of those about household cover – it currently finds seven in 10 customer complaints about PPI to be justified.
Worth repeating: 7 out of 10 cases relating to PPI were found in favour of complainants.
The PPI scandal signifies the fetid, slimy imagination of the banking community.
Bank of England Monetary Policy Committee
Time Wasters: The Bank of England Biscuit Policy Committee
The Bank of England Monetary Policy Committee was set up in 1998 by Gordan Brown, so that he wouldn't have to do anything.
The Committee's remit is to set interest rates, to keep inflation within certain limits and to focus on growth and employment.
The Committee is made up of a small select group of over-educated economists, including the Bank's Governor, four other bank employees and four external 'experts'.
For the past several months, the Committee, has done bugger all except consume vast quantities of digestive biscuits and voluminous quantities of tea.
The Committee meet for two and a half days each month to deliberate. Most of this time is spent trawling through data both from the real economy (where goods are made and traded) and the Disney World of the money grubbing spivs.
The Committee's Record To Date:
Up and until 2008 the Committee failed to notice the looming crisis, after all Gordan had banished boom and bust.
From 2008, the Committee were on two packets of digestives a month. Shit, clearly action was required, they cut interest rates. Then they cut interest rates again. They kept cutting interest rates until they got down to 0.5%. To go lower wouldn't make any sense. The cuts already made had no impact on the real economy.
Inflation continued to rise. Obviously, the rate cuts were holding inflation in check, meaning without the previous rate cuts, things would have been worse. Obviously.
However, inflation was above the 2% target, well above. So what do you do when the only tool you've got is interest rates and it doesn't work. Have another packet of biscuits.
No! You create something called the Asset Purchase Facility (2009). Brilliant idea, basically you print some money, you use the money to buy assets that the banks are holding, the banks now have the cash to inject into the real economy. Well, dunk me another biscuit Mervyn.
The Committee couldn't do anything about inflation so it turned its attention to growth. The combination of low interest rates and liquidity in the system must engender some growth. Well, no, the banks didn't play the game and weren't keen to lend to support British business.
The reason the banks didn't play the game is quite simple. They were unable to find a way, after years of recklessness, to lend sensibly. So like an individual faced with an impending nervous breakdown, the best course of action is to do nothing.
Essentially, the Committee put its faith in a banking community behaving like a stroke victim, fully conscious but unable to act.
The last quarter of 2010 saw -0.5% growth, the first quarter of 2011 saw 0.5% growth, in other words, no growth for six months.
In Sum:
The Bank of England Monetary Policy Committee are a bunch of time wasters. Admittedly, they are only paid in biscuits but that's far in excess of what they deserve.
Their low interest rate policy has done nothing for the struggling real economy, it has helped existing mortgage holders but stuffed savers.
Globalisation has signed the deathnell for inflation control, Britain is a price taker, not a price maker anymore. Low interest rates have forced down exchange rates and should encourage exports but can't stem the tide of imports for an economy reliant on imported goods. The balance of trade is unfavourable.
The model of the economy that the Committee base their thinking on doesn't exist anymore. There was nothing in their textbooks about bankers who wont lend, or savers who wont save, or about consumers who wont spend. And there was nothing in the books at all about a post-industrial economy signed up to financial manoeuving over genuine innovation in new technologies.
Time to end the monthly biscuit beano.