It is strange to look back seven years, amidst the continuing tale of the collapse of Carillion, and read of “the death of PFI“. The claim was made by Jesse Norman, who campaigned resourcefully against its flaws, and helped to change Westminster’s view of the scheme. The background can be summarised simply. John Major’s Government introduced PFI. New Labour and Gordon Brown expanded it: for both, it had the merit of keeping the debt to finance projects off the books, thereby helping the latter to keep his fiscal rules.
Norman probed and prodded at PFI’s costs, angered initially by car parking charges in Hereford Hospital, in his constituency. Others took up the theme. In opposition, David Cameron complained that “in one hospital it cost £333 to change a light bulb”. In government, George Osborne got entanged with PFI in the Treasury early, when he ran into difficulty when buying a £40 Christmas tree for the department from B & Q: the alternative specified in the department’s PFI contract cost £900.
The Coalition and the Conservatives ran down new PFI projects. In 2016, only two were approved. The destruction of Brown’s fiscal rules by the financial crisis, and early retrenchment in capital spending by the Coalition, drew the curtain down on the PFI era, which had peaked in 2006. But Norman was not quite right to say that PFI was dead – or, rather, if he was, the project turned out to have a golem-like indestructability. The Coalition may have created relatively few new PFI projects, but it pressed on with a mass of old ones.
In March last year, 716 projects were outstanding. Is the lesson of Carillion that outsourcing is an idea past its time, out of date in this age of Corbyn-propounded nationalisation – and a Conservative-supported industrial strategy, for that matter? The answer can be found by looking back even further than Norman’s article. The growth of PFI was in part a response to complaints about public sector projects running over time and budget: the Jubilee line extension; a Trident submarine berth.
But it won’t do for the party of capitalism, as Mark Wallace wrote on this site recently, simply to defend the principle of outsourcing, as costs to the taxpayer rise. For while there is no bailout, the taxpayer will none the less take a hit – for keeping services running, for re-tendering contracts, for sub-contracting and employment costs. Carillion is indeed a government customer, as Theresa May has put it, but that isn’t the whole story. After all, few customers have the responsibility of managing the consequences of their supplier’s collapse.
Carillion re-exposes a familiar problem: Whitehall’s weaknesses in managing contracts; a system in which big companies get a slice of the action that may not match their capacity to deliver; getting too close to some providers. Perhaps Norman’s old recommendations should be revisited. He wanted “a new central unit across government to monitor all PFI-style projects, to advise on best practice, to educate actual and potential public sector clients on contract management, and to generate greater “shared client power”.
Carillion’s core problem was the opposite of what Corbyn’s rhetoric might suggest. It wasn’t that the company was making outrageous profits. Rather, it was that it wasn’t making enough money. The question that follows, as the Institute of Directors has asked, is why government didn’t clock the warning signs, and whether it should have acted on the disparity between bonuses and profits. No wonder Ministers are scrabbling to block them. P.S: As fate or chance or whatever would have it, Norman is currently a Transport Minister.