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WHAT should a Labour government do about the private finance initiative (PFI), the privatisation scheme squeezing cash from schools and hospitals? Shadow chancellor John McDonnell says bring the deals back in-house, through nationalisation or negotiation.
But Walthamstow Labour MP Stella Creasy has an alternative plan — a windfall tax. Which is right?
PFI schemes ask private consortiums to build and run hospitals or schools charging the government the cost of running the building for 25-30 years.
A typical consortium is made up of a bank (for the money), a construction firm and a “service” firm for the cleaning, catering and maintenance. NHS nurses and doctors and school teachers become tenants in privately run buildings.
Gordon Brown and Tony Blair were very — and very wrongly — keen on PFI. Private firms got control of huge swathes of the public sector.
They run it badly, with penny-pinching, low-wage models.
In return they charge the public sector over-high rates, squeezing hospital and school services: we face £200 billion PFI charges to private firms for schools and hospitals over the next 25 years.
Creasy suggested an incoming government should not try to renationalise them because their lawyers might force the government to pay billions to take them over.
Instead she suggests a windfall tax because corporate tax rates have fallen over the life of the contracts, she argues there is less legally challengeable room to force them to pay a windfall tax on their profits.
The New Statesman calls this a “third way.” It is reminiscent of New Labour’s third way. Before the 1997 election Blair fought to drop “Clause 4” of Labour’s constitution, which committed the party “to secure for the workers by hand or by brain the full fruits of their industry” by “common ownership of the means of production, distribution and exchange.”
Blair wanted this “pro-nationalisation” clause gone. He rejected strong calls in Labour for renationalising water, electricity and gas and dropped a plan to renationalise rail.
Just before the election Blair addressed businessmen in the City of London, saying: “Economic activity is best left to the private sector” because he believed only in “what works.” Blair celebrated the loss of Clause 4, promising no new nationalisation.
Blair simultaneously offered businessmen a “12-point plan” to “revitalise” PFI. Boosting PFI was closely linked to dropping Clause 4.
Of course, “what works” didn’t work: PFI was a disaster. Railtrack had to be emergency renationalised after terrible lethal crashes.
There was a big argument within Labour over dropping Clause 4.
Brown offered a windfall fax as a kind of consolation. There would be further privatisation under PFI and no renationalisation. But existing privatised utilities — rail, electricity, water and others — would pay a one-off tax of around £4.8bn, levied to make up for the super-easy profits they’d made — like a farmer who didn’t have to pick apples because the wind made them fall.
The 1997 windfall tax was designed to be a substitute for renationalisation and, effectively, a cover for expanding PFI.
Creasy’s windfall tax also seems designed to preserve existing PFI schemes. The 1997 windfall tax was used to fund a back-to-work scheme, so did some good.
No doubt a windfall tax on PFI would also do some good. But the 1997 tax left water, electricity and rail privatised, with all the problems this caused. A PFI windfall tax would have similar limitations.
By contrast McDonnell’s plan is nationalising the “special purpose vehicles.” These are the companies set up by the consortiums to run each PFI.
McDonnell believes the government can set a “fair” price. Creasy argues this will be too easily legally challenged, and so too hard. But windfall taxes can also be legally challenged, even if the case might be easier.
As we look back on 1997, which was the best way to go then — “windfall taxes” that raised cash but made no fundamental change, or renationalisation?
That is a guide to how we should deal with PFI. The “easier” route isn’t always the better one.
Taylor Wimpey and crony capitalism
IF A company with close contacts to the government gets big government subsidies in the developing world, it’s called “crony capitalism.” So what is happening at leading housebuilder Taylor Wimpey?
It made £589 million profit this year. That’s big money, but it only built around 14,000 houses.
According to its annual report, “during 2016 approximately 39 per cent of total sales used the help-to-buy scheme.” Nearly half its business is government subsidised. Since 2013 the Tories have put billions into help to buy, an extra-low-cost loan to people buying new houses.
Help to buy increases demand — by subsidising housebuyers — instead of increasing supply. The cost of new houses has been going up more than the number of new houses.
It’s a subsidy that boosts housebuilders’ profits without seriously increasing the number of houses.
Taylor Wimpey saw its profits increase without building many more houses. According to its annual report, profits went up but mostly “the increase was driven by improved selling prices in the UK, up 10.9 per cent to £255k” per house.
Some people are doing well out of a dysfunctional housing market.
In November 2016 Taylor Wimpey hired a new board member. It made Angela Knight a non-executive director. For this part-time job, Knight gets around £50,000 a year. She is a former Tory Treasury minister.
Knight has strong, ongoing Tory connections. She actually has a current job in the Treasury as chair of the government’s Office of Tax Simplification — a Tory-created board with a remit of “reducing tax compliance burdens on both businesses and individual taxpayers.”
Knight also serves on the board of Arbuthnot Latham, a private bank for “high net worth individuals” — rich people in old money — that is controlled by top Tory donor Henry Angest.
Knight specialises in representing unpopular industries that rely on government subsidy and support. She was previously the boss of Energy UK, representing rip-off energy firms. Before that she was boss of the British Bankers Association, representing rip-off banks.
Having seen her joking and laughing with Tory ministers at Conservative conference, I can say her links to the top members of the government are friendly and strong.
A former government minister with ongoing political contracts joining a government-subsidised firm would be called “crony capitalism” if it happened in Africa or Asia. In Britain it attracts no comment.
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