The Real Expenses Scandal
It's a thousand times bigger than the one we're talking about, so why doesn't it ignite public anger?
For a moment, my heart leapt. The headline on the front of yesterday's Daily Mail contained the words travel, scandal, extortionate and £6.2. I imagined, until I read it properly, that it referred to the £6.2bn contract to expand the M25 motorway, which has just been signed. Some hope. "The £6.2m bill: Scandal of how MPs are taking taxpayers for a ride with extortionate travel expenses" referred to a rip-off precisely 1000th of the size of the travel expenses scandal that interests me.
I understand the public anger and fascination about MPs' expenses, and the burning question of whether you can obtain capital gains tax exemption on your second duck house. But it is microscopic by comparison to the corruption that has been bubbling along merrily for 15 years in the UK, unmolested by the tabloid press.
In April, the widening of four sections of the M25 was to have cost you and me £5bn. This was already a spectacular rip-off. The Campaign for Better Transport had calculated that the same amount of extra road space - if it were really needed - could have been created for £478m(1). But somehow, over the past four weeks, the £5bn for widening four sections of motorway has mutated into £6.2bn for widening two(2). In Sicily, officials agree to terms like this with the help of dainty gifts like horse's heads and waistcoats full of fish. In the UK, the government volunteers them without any obvious inducement.
There's nothing remarkable about this inflation: it appears to be an inherent property of the government's private finance initiative schemes. The PFI allows consortiums of banks, construction and service companies to build and run our public infrastructure. Though the government maintains that this offers better value than using public money, in reality the numbers behind all PFI projects are rigged(3,4). While the government retains much of the risk, the investors keep the profits, which often run to many times the value of the schemes. The public liability incurred so far by the private finance initiative is £215bn(5). Much of this spending (half? three-quarters? - the deals are so complex and opaque that we will never know for sure) is pure pork fat. One day the repayments will destroy Britain's public finances. This extravagance makes our MPs look like ascetics.
But this waste will never feature on the front page of the Daily Mail - or any page at all. Though it purports to speak for the lower middle classes, the Mail serves the rentier class, which benefits from these deals. The issue is also so complex that it is hard to see how it could be conveyed in a tabloid story. You have only to write the words private finance initiative to lose 90% of your readers.
Across twelve years of researching this issue, I have kept running into the brick wall of public indifference. I have used every conceivable device to try to convey the scope and scale of this rip-off. None of them works. Like the academics Jean Shaoul and Allyson Pollock, the magazines Private Eye and Red Pepper and the Sunday Telegraph's columnist Liam Halligan, all of whom have spent years exposing this scandal, I appear to have been wasting my time. The issue is too remote and too complex to ignite public indignation. The scheme's obscurity has protected it from the outrage now being directed towards MPs.
But just in case anyone is still reading, I'll try again. The terms offered by the new M25 scheme are so generous that an orang utan in a suit and tie couldn't fail to clean up. The new price appears to represent the cost to the government of keeping the banks in the deal. The scheme is meant to be ready in time for the Olympics, but the companies involved have spun out the negotiations for so long - demanding ever more outrageous terms - that the government is now prepared to pay almost any price to get the road widened on time, regardless of future liabilities. The option of tackling the problem by reducing the volume of traffic - an orbital coach network is the most obvious solution - was never considered. When Alistair Darling was transport secretary, he was asked about this alternative in the Commons. He dismissed it out of hand(6).
One of the consistent features of PFI is that the projects are reverse-engineered to meet the demands of corporate investors. This, for example, is how the £30m public scheme to refurbish Coventry's two hospitals became a £410m private scheme to knock them both down and rebuild one of them - containing fewer beds and fewer doctors and nurses(7). The old scheme was too cheap to attract private money. Similarly, an orbital bus system offers only modest profits.
Last year, the Treasury promised to bring private finance deals onto the government's balance sheets, in order to meet international financial reporting standards. Most PFI schemes don't count as public debt, which is one of the reasons why the government finds them attractive. (The other is that this corporate welfare bought New Labour the support of business groups and sections of the rightwing press). But on May 13th, at the height of the MPs' expenses scandal, the Treasury quietly reneged on this promise(8).
In opposition, when Labour opposed PFI, Alistair Darling complained that "apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come"(9). Now, as Chancellor of the Exchequer, he has decided to keep disguising this commitment from the public. Government departments will publish two sets of accounts: one which keeps PFI schemes on the books to meet international standards, another that keeps them off the books in order to conceal the extent of public liabilities(10). This is what Enron did: it produced different sets of accounts for different audiences.
The Treasury issued no press release to announce this change of policy, and refuses to send me its guidance to government departments, which explains how the new rules will work. The private finance initiative, like parliament, has been protected for years by secrecy and obfuscation.
We never could afford this extravagance, but to keep squandering money on PFI schemes today, when we know how much trouble government finances are in, is lunacy. Last week the ratings agency Standard & Poor's warned that the UK's credit rating could be cut(11). No one in this government appears to care about the extra, unacknowledged debt it is loading onto future administrations through PFI. Because these schemes run for 25 or 30 years, their liabilities are someone else's problem.
The health secretary Alan Johnson has just called for a "root and branch look at how our democracy works"(12). Is the notion that this might include a re-appraisal of the private finance initiative too much to hope for? Yes. There is no tabloid campaign against this corruption, nor will there ever be. The Conservatives, for all David Cameron's talk of "re-instating accountability" have no intention of scrapping PFI. The real British expenses scandal appears to be immune to exposure.
1. Campaign for Better Transport, 8th May 2008. Award of £5bn M25 PFI contract shows "appalling judgment". http://www.bettertransport.org.uk/media/press_releases/may_2008/m25
2. Highways Agency, 20th May 2009. £6.2 billion M25 Design, Build, Finance and Operate (DBFO) contract awarded. http://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=401868&NewsAreaID=2&NavigatedFromDepartment=True <http://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=401868&NewsAreaID=2&NavigatedFromDepartment=True>
3. http://www.monbiot.com/archives/2005/06/28/our-very-own-enron/ <http://www.monbiot.com/archives/2005/06/28/our-very-own-enron/>
4. See also Allyson Pollock, 11th April 2007. A gauntlet for Brown. The Guardian.
5. Nicholas Timmins, 24th February 2009. Projects seek partners. Financial Times.
6. Alistair Darling, Secretary of State for Transport, 9th July 2003. Hansard Column 1181. http://www.publications.parliament.uk/pa/cm200203/cmhansrd/vo030709/debtext/30709-09.htm
8. PPP Bulletin, 13th May 2009. Accounting 'decoupling' will keep PFI off government books. http://www.pppbulletin.com/news/view/14706
9. Quoted by the Financial Times, 11th January 1997.
10. Nicholas Timmins, 13th May 2009. PFI projects to 'stay off the books'. Financial Times.
11. Ashley Seager, 21st May 2009. Ratings agency downgrades outlook for UK economy. The Guardian. http://www.guardian.co.uk/business/2009/may/21/standard-poors-uk-economic-outlook
12. Alan Johnson, 25th May 2009. Speaking on the World at One, BBC Radio 4.
Published in the Guardian, 26th May 2009