From the BBC:
The government could have to bail out Private Finance Initiative projects to the tune of £4bn in the next 18 months, an industry spokesman has warned. Tim Pearson, of the PPP (public-private partnership) Forum, said the recession was limiting loans to firms on PFI projects like schools and hospitals.
PFI was originally a way of getting assets and liabilities off the government books to flatter the borrowing figures. The government paid a handsome premium for this, which is why the is a market for 'second hand' PFI contracts - once you've got the contract, you can sell it on to an actual construction company for a large slice of the embedded gain. Heck, there's even a market for funds that invest in such second-hand deals.
That would be bad enough. In the meantime, the government has come up with another wheeze to lend to businesses off balance sheet, namely by 'guaranteeing' the loans that banks make to businesses, rather than lending directly. Not that this is working, of course. If the government fails to charge the correct insurance premium for the guarantee, then that's another misallocation of funds and a further cost to the taxpayer. If it did charge the correct premium, then there'd be no additional lending either, as it happens.
But now they've gone full circle - the government is providing off balance sheet funding to private companies (at less than market interest rates) to subsidise their own off balance sheet funding (for which they pay above market interest rates). The overall losses on this must be colossal.
OK, pop quiz time: if we go with what Uncle Vince says, i.e. "the government should go back to more traditional public financing structures rather than use taxpayers' money to prop up the public-private model", what sort of tax would provide the best match between the amount of revenue raised and the benefits that infrastructure spending bring to an area..?
What have we wrought in the UK?
10 hours ago
11 comments:
Are you familiar with the tune "One Note Samba"?
It's 'Alice in Wonderland' time again.
The real point is that we haven't got the money for these little treats, any more, anywhere. We've been living above our means and we have to stop spending money we don't have on things we cannot afford. THAT's what the capital markets are saying.
Anyway I have yet to be convinced that students are better taught in expensive buildings. In winter we often had to wear our coats in our classrooms at my Grammar School. Never did me any harm and the teachers just got on with it. One used to wear fingerless mittens. I still learned. (In truth I was an appalling student - but that's my problem).
L, "I have yet to be convinced that students are better taught in expensive buildings"
Agreed. More to the point, the number of children of school age is falling, so they can just use the nicer buildings and sell off the surplus ones.
Can the govt use this 'crisis' to buy back the PFI schemes at, say, 70% of their original value?
V, brilliant plan!
Like that one Vindico!
At last. A way out of the circus tent.
Vindico is a genius. I am shamelessly stealing that idea and will slip it into various conversations to see if I can get anyone important to believe that they thought of it...
"why the is a market for 'second hand' PFI contracts - once you've got the contract, you can sell it on to an actual construction company for a large slice of the embedded gain."
That's not how the secondhand PFI deals work - rather, construction companies win the deal in the first place, award themselves the construction contract, and then sell equity in the future returns to a pension fund (because it's an almost-entirely-safe long-term stream of income).
"THAT's what the capital markets are saying"
No it isn't; they're still pretty much saying "the government can borrow lots of money; it's all fine".
JB, thanks for clarification. I could rephrase that as "once you've got the contract, you can sell on ... a large slice of the embedded gain [to a pension fund]".
But that stream of future profits its only safe and steady because the government has overpaid AND guaranteed - if it paid the correct amount, the NPV of future super-profits would be £nil.
"THAT's what the capital markets are saying"
Did I say that?
Indeed not; I didn't think my quoting implied you had; sorry if it did.
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