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How Wales Escaped the PFI Legacy

July 3rd 2012

The evidence is now accumulating that NHS Trusts in parts of England are finding it almost impossible to make the PFI repayments on their assets and maintain service levels. The local government finances in England are also being severely constrained when the local government grant is increasingly being top-sliced to pay for the PFI financing of schools over the past decade – the losers are proving to be those in need of social care to keep them out of the financially constrained hospitals.

Public service deliverers in Wales have huge financial problems. Their grant allocations do not match inflation at a time of increasing demand; but they do not have the same PFI legacy. How did this happen?

In 2001 a number of key decisions were made to bring financial discipline to PFI financing in Wales. Until that date the processes in Wales were the same as in England. They were designed to encourage the use of private finance by not requiring that decision takers took account of future cost. So, for instance, a local authority could bid for a privately financed project with an assurance that the future repayment costs would be met by all other local authorities as a top-slice from the local government settlement, not by itself. Bizarre but true. The then Finance Minister, Edwina Hart, did not prevent local authorities from using private finance; she placed on them the discipline of financing their own repayments. As a result there was less private finance but it was based on proper business planning taking account of future repayment costs.

In the Welsh NHS the use of PFI was never prevented by the Welsh Government. However the use of private finance was limited to the provision of a long term asset such as a new hospital. The Welsh Assembly Government introduced new rules that prevented the use of long term private finance to fund the annual costs of catering and cleaning. This was a sensible discipline that prevented current costs being funded by future tax payers. In the main PFI providers withdrew their offers to the Welsh market as there were richer returns elsewhere.

The Welsh Government was often portrayed as being anti-business for its approach to private finance. New Labour enthusiasts briefed that Welsh Labour was some sort of antediluvian remnant of a past age. In truth there was a determination to make our public finances prudent, sustainable and based on proper economic disciplines. In the period 2003-10 there was a very substantial increase in capital expenditure financed from within the Welsh Government’s own budget, on balance sheet. Nevertheless there are fewer new schools and hospital buildings in Wales compared to England. However, when we look over the border and wonder at the volume of new concrete and glass we should note also the escalating call on declining budgets.

 

Paul Griffiths, Public Services Consultant and RCT Councillor

 

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