Christiansen and Shaxson Are Either Lying Or Grossly Ignorant On The Subject Of PFI

John Christensen and Nick Shaxson have put together a submission to an inquiry into wealth inequality in the UK. In the course of which they reveal that we should all have serious concerns over their potential access to sharp objects. Actually, to their ability to chew gum and fart at the same time.

Or, of course, it is possible that instead of merely being remarkably ignorant of the subject under discussion they’re lying for some political reason. Around here we think they’re simply ignorant, they’re not bright enough to lie usefully.

Of course, given the issue, it’s the Senior Lecturer who uses it as a leaping point onto the hobby horse.

Their argument is, in essence, that London does as a result of the excessive financialisation of the UK economy drag money out of all parts of the country and record it in the City and the surrounding area. They use an example that TJN has not highlighted on its website but which I think well worth promoting.

Yes, that’s right, the claim is that the Gorbals is subsidising the City.

Sigh.

More specifically:

In July 2002 HRH Prince Charles opened the Strathclyde Police Training and
Recruitment Centre in East Kilbride in Scotland. Now renamed the Police
Scotland College at Jackton (pictured), the project was part of the Private
Finance Initiative.

Latest official data record the project as having a capital value of £17 million
(though news reports said the project cost was £27.5 million.) However, the
same official data show a stream of payments to the company delivering the
project of £111 million over the 26-year financing life of the project.7 This
fourfold to sixfold disparity between project capital cost and total repayments is only partly explained by standard discounted financing costs:
it would have cost the government roughly £35-50 million had it financed
the capital value of this project by issuing a bond paying five percent
interest, and used the proceeds to pay private contractors directly.
Such discrepancies are common for PFI, which is widely reported to be
delivering poor value for money…

Well, yes, if you think that all PFI does is build and deliver a building then you will think it’s all remarkably bad value. The ignorance/malevolence point here being that a PFI contract isn’t just about building delivery. It’s about building delivery and maintenance and operation over the life of the contract.

That is, the annual payment is a union of the operating costs – including maintenance – and the capital costs. That’s why it’s called the Unitary Payment. It’s both Opex and Capx. And this Scottish police centre does indeed have the cash costs they claim. Because, as the NAO points out:

Once the asset is constructed and available for use the taxpayer
makes ‘unitary charge’ payments to the SPV over the contract term, usually 25 to
30 years. This charge includes debt and interest repayments, shareholder dividends,
asset maintenance, and in some cases other services like cleaning.

Christiansen and Shaxson are marvelling at the manner in which building and running a building for 25 years is more expensive than merely building one.

Just the people we want giving evidence on how we should be ruled, eh?

I really do think it’s just stupidity driving this but that’s hardly a great recommendation, is it?

BTW, depending on who you talk to maintenance costs over several decades are higher than original build cost.

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Leo Savantt
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Leo Savantt

PFIs may or may not be a good idea in principle, however in practise one suspects that they haven’t necessarily offered value for money; with Christensen and Shaxson sprouting either lies or idiocies or even both it is hard to know for sure.

Jonathan Harston
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Jonathan Harston

We’ve had PFI in Kong Kong for decades, but it’s called Build Operate and Transfer, which makes explicit what it is. You build it, the government pays you to operate it for typically 30 years (where “operate” includes maintaining and repair it), then the asset is transfered to the government.