PFI Blues

Poor Gordon. As if he doesn't already have enough to contend with, the much vaunted PFI approach to paying for things (or not, hopefully) seems to be collapsing all around him. He's had some of that school funding mess blow up on him already, and today we learn that the grand plan to fund the upgrade of the London Underground infrastrucrure through the PFI has gone south:

Taxpayers are to cover nearly all of the debt owed by Metronet Rail after creditors exercised their right to call in public-sector guarantees for 95 per cent of the value of the debt of the collapsed private underground contractor.

The Department for Transport yesterday announced it would pay Transport for London, the London mayor's transport organisation, £1.7bn to cover the cost of the guarantees, at the same time as announcing a £39bn funding package for the organisation over the next decade.

TfL was facing the bill for Metronet's debt after lenders to the company exercised a so-called put option, allowing them to demand repayment of 95 per cent of the company's debt six months after it went into administration.

The company collapsed in July, after running out of money and failing to win enough extra funding in an appeal to the arbiter of the 30-year, £30bn London Underground public-private partnership.

TfL's guarantee of the PPP contractors' debt has long been one of the most controversial aspects of the complex programmes. The public-sector guarantee for the debt was raised just before they started in 2003 from 90 to 95 per cent because of concerns about lenders' willingness to back the companies.

London Underground, the subsidiary of TfL that employs underground drivers, signallers and station staff, is trying to take over Metronet from its administrators andhas said it will restructure the company after the takeover. The government favours a continuing strong private-sector role in the new company, while TfL favours a stronger public-sector role.

So the whole point of this--keeping the debt off the Treasury books--has backfired tremendously. And there's undoubtedly more to come. Gordon and Tony for years refused to listen to the argument that this would, some day, blow up on them, and Gordon probably is still in denial. In fact, the NHS is under orders to continue to use this approach, as the recent sale of three NHS clinics in Camden to a private American (of course) "health care provider" attests.
Some day, some cultural historian will have to sit down and assess one of the most interesting aspects of New Labour. Not the fascination with everything American. This is an English thing, and it pervades the culture, and it's actually kind of fun to watch. No, what will need a thorough analysis is how Blair and Brown managed to pick the worst aspects of America to emulate--the senseless militarism, the ridiculous hostility to government, the suspension of belief in economic reality. It will be a dirty job, of course, but someone will have to do it.