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EDITIONS
Monday, 30 September, 2002, 14:55 GMT 15:55 UK
Q&A: What is PFI?

The creeping privatisation of public services under New Labour is one of the main gripes of the trade unions, and is certain to sour the air at the party's conference this week.

But does anyone really understand what a "public-private partnership", or a "private finance initiative" is?

Never fear: BBC News Online has the answers.

What is the private finance initiative?

In theory, it's about relieving the government of a tiresome bureaucratic burden.

Designing, constructing and maintaining the thousands of state-owned roads, schools, hospitals and so on doesn't just cost a fortune, it distracts the government from what it should really be doing - formulating and implementing policy.

So the Conservative government in the 1990s decided to contract out this mundane work to private firms.

Instead of producing cash upfront for a new 10m hospital, the government agrees to pay a private firm an annual fee - maybe 1m a year over 25 years - to take on the entire construction and management.

The private firm makes a profit on the fee; the government avoids the administrative hassle and - its economic boffins say - saves a little money in the long run.

If this is a Tory idea, why is Labour so keen on it?

It's all part of the mysterious "Third Way", of course.

Chancellor Gordon Brown thinks the PFI is the quickest way of building new schools, hospitals, transport schemes and what have you.

Mr Brown also believes that, in the long run, he can make the government's money stretch further, by spreading necessary spending over many years.

But more broadly, some of the party's philosophers see the combination of private profit and the public good as inherently wholesome - a distinctly unsocialist approach they call "PPP", or public-private partnership.

And the unions don't go along with this?

Not at all.

Unions fear that the PFI is the thin end of the wedge.

Letting private firms finance and run buildings is one thing; the next step could be to transfer actual services - teaching, healthcare and so on - into private hands.

The vast army of public-sector workers trembles at losing employment rights, and the general public trembles at the idea that standards may fall.

Some commentators, too, argue that the scheme will not save money in the long run, and is motivated more by New Labour's centre-right policies than by hard economics.

Who is winning the argument?

In the short term, things are swinging the unions' way.

Although the government says the public doesn't care who runs schools or hospitals as long as new ones are built, opinion polls beg to differ.

In recent weeks, unions have stepped up their campaign against New Labour's lurch to the right, and the PFI is at the top of their hitlist.

Conference delegates may well back a motion by the public sector workers' union, Unison, for a moratorium on PFI projects and an independent review.

But conference motions count for little in the long run, and it is hard to bet against the New Labour steamroller - especially when it is driven by Mr Brown's prudence and Mr Blair's politics.

I'm not a nurse, or a teacher - I'm not even in a union. Why should I care?

Behind all this is a bigger debate.

New Labour wants to reshape the boundaries of the public and private sector, but it isn't sure how.

Gordon Brown, seen as slightly to the left of some of his colleagues, is fiercely opposed to allowing bits of the public sector to "opt out" of state control.

The Department of Health wants to give some hospitals much more budgetary freedom - a proposal that Mr Brown recently said was "reckless".

PFI could spark a serious rift.

While there may not be much entertainment in a clash between Labour and the unions, a scrap at the heart of the New Labour establishment would provide fireworks.


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27 Sep 02 | Politics
26 Sep 02 | Business
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