Saturday, 8 December 2012

PFI-Perfidious Financial Idiocy

Newcastle libraries have a budget of around 9.1 million for the year 2011-2012 according to their CIPFA returns. In 2009, via a private fiance initiative they built two new libraries, a replacement for their central library and a new library in High Heaton (completed in 08). PFI was something that was dream't up in the dying days of the last Tory government in the 90's. It was taken up and enthusiastically pushed as a way of building new public sector infrastructure by New Labour. The premise is supposed to be simple, private funding is sought to build the building and a contractor runs the property providing upkeep and maintenance. The public body pays a monthly fee, similar to a mortgage over normally a 25 year period and at the end the building belongs to them. It is supposed to deliver value for money and because the private sector can do things cheaper than public, a better deal for the taxpayer. Anyone who has read private eye of the past few years will realise the is often not the case. I know nothing of the detail of the Newcastle libraries deal but we have all heard of cases where the PFI contractor charges £300 to change a light bulb or fit a new electrical socket for a similar amount. Public sector bodies were only supposed to go for the PFI option if it demonstrated value for money over using their own capital budget to build the thing themselves. Because of the small print it can mean the companies end up charging for lots of extras and the fact that the repayments are linked to inflation means that depending on how the economy is doing it may not be cheaper. If the economy continues the way it is for the next few years or longer with low to zero growth and inflation always higher then councils and public bodies who have gone for the "Wonga option" are going to struggle to service the payments and keep services going during the cuts to their budgets. But back to the Toon. They had a library budget of 9.1 million, their monthly payments for 09-10 were £271,761.33 per MONTH! That is 3.2 million a year for two libraries out of eighteen. And of course while the economy continues to die on its arse, thanks to the cost of petrol, gas and electric from our rigged energy market and all other goods going up in cost each year inflation will continue to rise and the monthly cost will continue to grow. In 2012-13 the monthly cost has risen to £281,506.50 which will mean a annual cost of £3,378,07.00 million. 

I accept that thanks to years of neglect that infrastructure was in need of investment during the Labour years. By 2009 though it was clear to everyone apart from those in charge that PFI wasn't the way forward, especially since it was pretty clear by then that the economy wasn't going to be bouncing back any time soon, coupled with the fact that procurement in the public sector tends to be very poor. The private sector always come out winners in contract negotiations.

If Newcastle City Council want to blame anyone for having to cut libraries I think they have to look at themselves mainly, going for the neo-liberal wonga option will haunt them for many years to come. 

Link to the PFI data:

Channel 4 fact check on PFI:

Article in the Indy on PFI buggering up the NHS:

1 comment:

  1. The actual net annual cost to Newcastle City Council of the two PFI buildings, City Library and High Heaton, is £155,579.25 as we receive credits of £3,200,149 from the Department for Culture Media and Sport in the form of an annual grant which is payable during the length of the project.

    The latest CIPFA returns show that once again, the City Library is the most visited library in the North East and the fourth most visited in the country.

    David Fay, City Libraries' Manager, Newcastle