The Private Finance Initiative rip off

by Brian Topping

Half of all Council Tax now goes in interest payments for Private Finance Initiative (PFI) projects. How did we get to this situation?

Throughout the 1980s and 90s, local government in Britain became a key area for competing class interests. Many progressive and left elements in the Labour Party and trade union movement developed a passionate but essentially naive political commitment to a form of radical, municipal socialism. In many areas of the UK, the municipal socialist forces took control of the local state apparatus, winning elections, and challenging the professional establishment and officer class in occupying key positions in the local state. This process was often supported by left advance in local government trade unions. It wasn’t a uniform trend, as significant parts of the country outside the metropolitan areas were largely untouched. These remained under Conservative political control, supported by a right wing ideological civil service and the lead council officers.

Local progressive programmes of social reform were implemented, particularly benefiting working class areas and supporting the aspirations of minority groups in the community. However, these were largely based on the views of Labour’s post war local government guru, Herbert Morrison, who advocated the socialisation of services rather than a socialist programme of transformation. 


The now non-existent Greater London Council (GLC), under a left Labour leadership, was often in the vanguard of this advance. However, with all local government in the UK being constitutionally denied the power of local competence to determine its own revenue from taxation, and being dependent for more than 50% of its income on central government, the position of municipal, socialist reformism was always fragile. When central government under the political control of the Conservatives imposed strict controls on the ability of the local state to raise capital through commercial borrowing or use its reserves, the position became even more precarious. This tension continued to gather pace throughout the 80s and early 90s.

It could be argued that while the progressive advance in local government at this time reflected the interests of the working class, the character of the social and economic policies of the central state and government clearly mirrored the concerns of the bourgeois ruling class. Restrictive, anti-union legislation came thick and fast, as did laws such as Section 28 which limited education on Gay/Lesbian relationships, aimed at restricting the progressive activities of local government. The first line of strategic attack by the state came in the form of reduced or variable central funding. General and specific grants were cut, and legal restrictions were introduced on the ability of local councils to fund capital projects such as social housing. Additionally, the ruling class stepped up its ideological campaign through the mass media against local government as self- indulgent over-spenders of public money. The climate for an incremental offensive against public, local and community services gathered pace.

The great Miners Strike of 1984-85 saw many local government agencies joining with the striking miners and their families, to support and fund resistance to the capitalist offensive against the coal industry and surrounding communities. This informal alliance helped bring tensions between the local and national state to ahead. In 1986 the Thatcher led Tory government abolished the GLC entirely. From that moment, the ruling class attacks on local government, especially metropolitan councils serving the majority of the population, were stepped up. Privatisation became their weapon of choice and its method of delivery was principally Compulsory Competitive Tendering (CCT).


CCT enabled private capital to be used legally as a means to penetrate public sector services. Hospitals, support and ancillary services, educational establishments as well as social and community services, became targets. The interests of private profit would come first, and service provision second. For many left-leaning local authorities, resisting the encroachments of CCT became a major priority. When the framework for service delivery centred on the lowest price winning the tendering process, service quality was diminished. This battle was joined by cuts in central government grants and the switching of public money towards arms production and subsidies to private enterprises. Fighting such rear-guard actions became the main focus of local councils as municipal socialist practice and dreams slowly faded.

In 1997, a new beginning was promised by the election of a national Labour Government, under the banner of New Labour. For local government, not only was it largely a false dawn, there wasn’t in fact much that was new in New Labour. Peddling what its architects defined as a new synthesis between capitalism and socialism - a so called “Third Way” - it soon became evident that New Labour saw free market capitalism as crucial to the efficiency of public service provision. CCT was largely replaced by a US import, misleadingly called Best Value (BV). The authors of BV unfortunately understood little of the raison d’être of public or community services: they understood the price of everything and the value of nothing. BV began another retreat and many rear-guard battles. It limited the possibility of innovation in public services, with its stress on capitalist methodology at each stage of its assessment process and limiting the deeper understanding of service development shared by frontline workers.

Next came New Labour’s major pro-capitalist folly to be forced on the public sector, the Private Finance Initiative. At national level the New Labour government continued its love affair with Finance Capital, the City of London and its corporate interests. Keeping government capital investment in public and social facilities to a minimum became an obsession, particularly as it left more money in the Treasury for imperialist wars, and subsidies to the operations of private wealth. In effect this was a magic trick to reduce or lower national debt, while side stepping the need for the government to raise unpopular taxes.

Under PFI a private company is responsible for the up-front costs of any project instead of the government or local council. The project, for example a new hospital or school, is then leased back to the appropriate public body which makes annual payments to the private company which provided the original capital. Contracts based on this arrangement can last up to 40 years, but most have been 30. By sleight of hand public sector borrowing was then “off the books”. 

For the central government, the problem of large scale borrowing and raising taxes for public good thus became more removed.  It enhanced its relationship with the money markets, as well as its profile in the financial management of the macro economy. For finance and monopoly capital, it offered and still does offer the best of both worlds. Under PFI finance capital spent its money by lending it, not to the government, but effectively to communities. If people needed a new hospital or school, PFI funding was used, with the lenders leasing the building to the community or local council at vastly inflated rates for decades into the future. The community no longer owned its local school but would rent it, and pay high fees into the long term. A “nice little earner” as Del Boy might say and neatly packaged through public relations propaganda as a public-private partnership. This practice continued without hindrance until the impact of the international banking crisis of 2007-09 put the squeeze on the British economy. The Tories had to resort to more draconian measures in an attempt to manage the crisis, ensuring that the burden fell on the people and not the bankers. Enter the era of so-called austerity.

Like CCT and BV, PFI opened up new opportunities for capitalism, exposing local government to the vagaries of the marketplace, while placing new limits on democratic participation in the planning and delivery of local resources. However, more than any of this, it has been the austerity programme imposed by the Tories and the EU which has dismantled many of the progressive measures achieved over decades by local government. Massively reduced central government grants have served not only to limit local democracy, but have seen entire services such as youth services disappear in working class, metropolitan areas.


So what are the lessons? For many left reformists in the Labour Party or green movement, the possibilities of creating lasting social change and securing local services to meet community needs have been seriously cut back, reducing their ability to defend such services as populations become increasingly alienated from local government. A Labour government will need to loosen the chains on local government and put service provision first and not the cost of providing it. However, a dependency on representative democracy alone will not cut it. For revolutionary socialists the limitations of the local state are clear. In the short and medium term, a programme to reverse the capitalist measures of the last 30 years protecting the interests of private profit, would be a start.

In the long term, we will need to go beyond the relatively isolationist hegemony of winning positions, and achieve a broad mobilisation of class forces based on community and working class control of local resources. Such working class struggle is the road to real democracy. However, it should be recognised that such local programmes which can help mobilise the working class and its allies, remain limited if they are not related to a revolutionary programme which challenges ruling class power. Furthermore, such a progressive socialist programme based on social ownership of the means of production, community resources and mainstream media must have at its strategic heart, the fundamental aim of rejecting Britain’s imperialist role in world politics, and the military, industrial, political, economic alliances which underpin it.

PFI project - Westlands School, Torquay

Herbert Morrison