How Rachel Reeves is reaching for Labour’s favourite credit card — and risking another PFI disaster.
Rachel Reeves is reportedly considering a return to Private Finance Initiatives to help fund Labour’s new towns programme.
One might have thought that after the last catastrophe, Whitehall would treat the letters “PFI” with the same enthusiasm normally reserved for asbestos sandwiches or experimental Russian roulette. Yet here we are again.
The Treasury insists this is not a return to the old model. Of course it does. Every politician who reopens a failed experiment insists this time will be different. Every gambler believes the next hand is the lucky one. Every Labour government is convinced it has discovered a magical way to spend money it does not have eventually discovers the laws of arithmetic remain stubbornly in force.
The Treasury insists this is not a return to the old model. Of course it does. Every politician who reopens a failed experiment insists this time will be different. Every gambler believes the next hand is the lucky one.
Let us dispense with the euphemisms.
PFI was never a miracle of public finance. It was basically a credit card.
Indeed, it was worse than a credit card. At least when an ordinary family borrows money, they can see the balance on the statement. PFI allowed ministers to spend vast sums while pretending the debt did not really exist. The schools were built. The hospitals were opened. The ribbon-cutting ceremonies were photographed. The liabilities, meanwhile, were quietly pushed decades into the future.
It was politics by Klarna.
Buy now. Pay later. Let somebody else worry about the bill.
The result was one of the most expensive financial misadventures in modern British history. Labour governments under Tony Blair and Gordon Brown signed contracts that delivered roughly £13 billion of infrastructure but generated repayment obligations that eventually ballooned to around £80 billion. Taxpayers were not merely buying hospitals and schools. They were buying them several times over.
And who ended up paying?
Not the ministers who signed the contracts. Not the consultants who drafted the presentations. Not the Treasury officials who congratulated themselves on their creativity.
The bill landed where it always lands: on taxpayers, patients and future generations.
Today there are NHS trusts that spend astonishing proportions of their annual budgets simply servicing the debt obligations created decades ago. Money that should be paying for nurses, doctors, scanners and operations disappears into financial commitments negotiated before many current patients were even born. Some pay over half their annual budgets.
The great NHS debate is often conducted as though Britain’s health service suffers from some mysterious affliction. We are told the problem is austerity. Or demographics. Or management. Or insufficient reform.
Yet one of the largest self-inflicted wounds is hiding in plain sight.
For years, hospitals have been forced to divert precious resources into servicing PFI liabilities that were sold as prudent and innovative when they were anything but. It is difficult to modernise healthcare when substantial chunks of your income are already spoken for before a single patient walks through the door.
The irony is almost comic.
Labour created a financing model that extracted billions from future NHS budgets, and then spent the next decade complaining that the NHS lacked money.
Now the same political tradition appears to be circling back to the very mechanism that helped create the problem. The argument, naturally, is that Britain needs infrastructure. On that point everyone agrees.
We need homes. We need roads. We need energy projects. We need modern transport links. But needing infrastructure does not automatically justify financing it through the most expensive mechanism available.
If a family needs a new boiler, that does not mean taking out a payday loan is a brilliant idea.
The central problem facing Reeves is not difficult to understand. Labour has made enormous promises while simultaneously boxing itself in with fiscal rules. The Chancellor wants growth. She wants investment. She wants new towns. She wants voters to see cranes on skylines and bulldozers on building sites.
What she does not want is the debt appearing on the government’s balance sheet.
PFI has always offered politicians an irresistible temptation precisely because it creates the illusion of getting something for nothing.
But there is no such thing as getting something for nothing. The money comes from somewhere. The interest must be paid. The obligations remain. The future arrives.
And when it does, taxpayers discover that what looked like clever accounting was simply borrowing by another name — only at a significantly higher cost.
Britain desperately needs infrastructure. It desperately needs growth. It desperately needs homes.
What it does not need is another generation of Labour politicians pretending that a high-interest credit card is a substitute for sound public finance.
The lesson of PFI was supposed to have been learned. Apparently Labour has decided to sit the exam again.
Once more, the promise is “buy now, pay later”. But Britain already knows how that story ends. The politicians get the headlines. The financiers get the returns. The public gets the bill.
By Claire Bullivant
