Whatever public goals we aim to pursue, we are repeatedly told, private money and the profit motive are needed to deliver greater investment and efficiency. But in practice, opening the door to private greed routinely leads to costly mismanagement and ultimately, public grievance.
The infamous Private Finance Initiative has shown us how the ‘clever’ device of getting private companies to build facilities that are then leased to public bodies costs us all a great deal more money – solely to inflate the profits of the profiteering firms who got in on the act. The National Audit Office and the National Institute of Economic and Social Research have found that what private companies charge over time for the use of those facilities may exceed by over three times what it would have cost if the public sector had constructed them directly. Some have argued that getting the private sector to cover the up-front costs helps with borrowing funds to pay for those facilities, but studies into NHS and school PFI schemes reveal that private sector borrowing actually means that the overall costs are between 40% to 70% higher than identical projects financed by direct government borrowing. Furthermore, PFI contracts lock public bodies into long term payments (for routine maintenance and other facilities-related services) that would be substantially lower if they were able to cover those services themselves or tender them out to a range of suppliers. Figures reviewed in 2024 found that the UK government had 700 PFI contracts with a capital value of £57bn, but tied to paying out around £160bn to cover the agreements with the private firms involved.
Another lesson comes from the use of private equity and borrowing by commercial companies to take over public utilities. The privatisers’ argument is that profit-driven enterprises would invest more and lower costs. In reality, the so-called ‘investors’ fund their control of our water supply, for example, with 20% equity and 80% debt. We pay for our water usage, but the money goes into dividends for shareholders, and servicing the debt these ‘investors’ have loaded onto us. Since 1992 no new reservoir has been completed in the country by these profiteers. A report on Yorkshire Water found that around a third of every household bill paid to that company went to fund investors’ dividends and cover their debt bill. As for the famed private sector efficiency, this was well illustrated by Yorkshire Water’s dumping of raw sewage into rivers once every 18 minutes (figures for between 2016 and 2021; source: Environment Agency, and Weldon, D. ‘Owned by Private Equity’, The New Statesman, 17-23 April 2023).
Public resources have also been depleted by selling them off at a discount to private buyers. Since 1980, over 2.4 million council homes have been sold off below market rate, handing an estimated £194 billion of public housing wealth to private owners (see: https://www.common-wealth.org/publications/wrong-to-sell). Almost 40% of council properties sold under the Right to Buy scheme are now owned by private landlords, pushing up costs for those on low incomes. With a shortage of public housing, it means that rents for remaining council tenants rose sharply – by 1991 they were 55% higher, relative to average earnings, than they had been 10 years earlier. This continuous loss of affordable public housing is a major factor behind the national housing crisis.
Wherever we look – privatised energy firms profiteering from excessive charges that would not have been levied by public utilities; private prisons in the US incentivising judges to incarcerate more offenders to boost their income; private consultants providing advice to governments on policies they could undermine when they act for their commercial clients – the involvement of private interests should never be approved without the closest scrutiny and effective safeguards put in place. Anyone who says otherwise is either immensely naïve or shamelessly devious.
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Note: Despite the glaring flaws of PFI, it had been reported that some in the Treasury were tempted to turn to PFI again (albeit under the barely disguised name of PPP – Public-Private Partnership) to finance infrastructure construction for new towns.
