Amey, What Can the Matter Be?

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Attacks on the firefighters and PFI go hand in glove in the name of modernisation.

Could there possibly be a connection between New Labour's sudden relish for a showdown with the firefighters and the latest batch of woes to have descended on the government's pet PFI plans? At just about the same time as ministers were pondering the wisdom of squaring up to the FBU, some of the key firms involved in highly valued PFI and PPP projects were owning up to write-downs that set jaws agape on the stockmarket. Both Amey and W S Atkins were forced to postpone the signing of final agreements on London Underground infrastructure renewal projects until the New Year. Since the demise of Railtrack the share prices of other key PFI companies have been steadily tumbling (by 80 percent at Amey, 90 percent at W S Atkins and 63 percent at Jarvis).

All of this is an absolute nightmare for Gordon Brown and his Treasury aides. For more than five years (in the case of London Underground) they have attempted to stem criticism of their private finance proposals by maintaining the fiction that this will involve a fundamental 'transfer of risk' from the public to the private sector. In other words, the banks will bail out the taxpayer, not the other way round. As Harry Hill might say, 'What's the chances of that happening, eh?'

Not much, according to a major 'Sunday Business' profile of PFI contracts. As most other observers had long since concluded, this report said, 'The main reason why the government is so fond of using the PFI is that it enables it to engage in what its critics would call Enron-style accounting: by not paying up front for capital projects, the Treasury ensures their cost does not count as government borrowing.'

In a review of rail expert Christian Wolmar's new book 'Down the Tube', Liam Halligan, the economics correspondent of Channel 4 News, asked, if there was any truth in the 'transfer of risk' theory, why had the government pledged to underwrite 95 percent of the private infracos' bank loans, why do the consortia involved have a guaranteed rate of return close to 20 percent, why had it been necessary to squander £400 million of public money on lawyers and contracts and why has the liability for cost overruns been capped at £50 million for each of the four stages in a 30-year deal.

As most folks realise, any talk of 'risk transfer' with operations like the London Underground or the railways is nonsense because the government will always be forced to stump up, just as it has (on a truly spectacular scale) with Railtrack. The most recent troubles at Amey and W S Atkins exposed that with the Underground, far from eliminating the need for public subsidy as promised, the main consortia could not even guarantee the £4 billion they are meant to contribute to start-up costs. Meanwhile, £5 billion is being coughed up by passengers on fares and another £7 billion has already come directly from the taxpayer. Summing up the predicament faced by New Labour, the 'Financial Times' wrote that 'the plan partially to privatise the tube is dangerously close to collapse' and 'the usual advice for anyone finding themselves in a hole is to stop digging'.

Since Balfour Beatty, Jarvis and others are exactly the same firms the Treasury wants to put in charge of PFI projects in education, local government and health (notably with the new foundation hospitals), the 'Financial Times''s apparently shameless solution was to suggest the government should give a 'one-off' assurance to the banks (and twitchy shareholders) that the loans would be secure. No mention here of sacking the lot as they were to recommend the very next day as an ideal way of 'concentrating the minds' of firefighters on strike.

City fears that the PFI gravy train may already be heading for a ditch are not the only worry. Because of the way that PFI projects help to remove debt from the government's balance sheets, official figures for public borrowing are estimated to have been cut by as much as 2.1 percent of gross domestic product. None of the 500-odd PFI schemes agreed to date and worth a grand total of about £22.5 billion appear as part of official public sector debt. As a bonus, it also helps gorgeous Gordon keep government borrowing below the magic figure of 40 percent laid down under UK and EU fiscal rules.

All of this could change dramatically if major PFI projects either start going down like a pack of cards or failing to get past square one. And, although nobody is talking about privatising the fire brigade (not yet, anyway) the kind of changes that New Labour fanatics want to see as part of the 'modernisation' process are much the same throughout the public sector--fewer people doing more work on less secure terms and conditions and for less money. All of which is catalogued in horrifying detail in Sir George Bain's truly scandalous 'official inquiry' into the fire service, which reads more like a management wish-list of best Christmas presents ever.

Just think of the savings to be made if they could get firefighters to do a paramedic's job as well as putting out fires, or send them round to your house if somebody had a heart attack and no ambulance was available. They might even be able to fit you a new carpet while they were at it and check out the boiler at the same time.

Quite rightly, ordinary members of the fire brigade have treated this kind of 'blue skies thinking' with contempt. But it is exactly the kind of thing that New Labour would like to see, not only in the fire service, but in schools, colleges, hospitals and local authorities as well. And, as they see it, the way to bring that about is by forcing the issue on PFI. So the type of 'modernisation' they are talking about--which is paid for by productivity and does not appear in the public accounts--goes hand in glove with the success or otherwise of PFI.

But there are one or two problems in the way of this grand design. The government has been forced to promise all of the major unions that it has no intention of allowing the development of a 'two-tier' workforce. And in other parts of the public sector, it has already been forced into making some major concessions on pay to teachers, doctors and the police. There has also been a long queue forming over recent months of workers up in arms over issues like pay and London weighting. And, of course, there's a war to pay for.

These are all the 'wreckers' that Tony Blair apparently fears the most, and the attack on the FBU can only be seen as a calculated attempt to intimidate other groups of workers before things start to get really out of hand. Not only to stop demands for big increases spreading across the public sector, but also to break the deadlock on PFI. It's a frightening thought if we do end up with Amey or Atkins running everything. Even the 'Daily Torygraph' has commented, 'Should we be entrusting the kiddies or the sick to this lot?'