Labour Party chancellor Rachel Reeves is considering bringing in a type of Private Finance Initiative (PFI) to fund a new highway and tunnel across the Thames in the east of London. Instead of the taxpayer footing the bill, the government would introduce potentially indefinite user charges (tolls) to compensate private sector cost and profit. On top of that, the government may provide its own funding to ‘de-risk’ the construction investment.
Rachel Reeves – PFI is the latest plan
Whether the taxpayer covers the cost or the user, introducing private profit to public infrastructure and services that facilitate, in this case, the movement of people and businesses, can only increase the cost of that development.
The PFI-style approach aims to keep the costs off government books. But those costs are only transferred to the taxpayer or the user. It’s an accounting trick. It only makes sense if you are ideologically wedded to expanding concentrated private sector profit.
The Conservative government financed a new sewer under London, the Thames Tideway, with this new style- PFI. During the year 2022-23, Bazalgette Tunnel Limited – the financer, builder and operator of the Thames Tideway – made £144.6m profit. This shows the prospect of increased user bills makes its financial instruments profitable.
The eye-watering cost of PFI
Successive Conservative and Labour governments took decades to drop the PFI scheme, which John Major introduced in 1992. That’s despite the astronomical profit extraction that was classical PFI.
Financial campaigner Joel Benjamin pointed out that City lobbyists contributed to the establishment of PFI. This turned out to be a huge scam. Infrastructure projects with a value of £54.7bn ended up costing the taxpayer over £300bn. This is more than a year and a half of the entire current NHS budget.
The whole point of infrastructure projects like a new tunnel is to increase long term efficiency of cost through saving the user time and money, with a one-off building investment. For instance, consumers and those delivering goods or services save X petrol and X minutes through using the tunnel. In other words, it’s something for people and businesses to benefit from across the board. But PFI-style deals warp that. It turns infrastructure into a cash cow for rich shareholders who already had the money to invest.
Instead, the government should use the Bank of England to invest with fiat currency, removing profit or debt from the equation.
Featured image via Rachel Reeves – YouTube
