The Guardian view on the private finance initiative: replace this failed model

Long ago, in a political galaxy far away, privatisation and outsourcing in public services were not always dogmas but instead acts that could involve a degree of pragmatism and some balancing of interests. After the postwar Attlee government and before Margaret Thatcher’s long reign in British politics, decisions about the relationship between the public and private sectors were often practical compromises, not ideological fixations. Government’s role was always and necessarily central, but it could be flexible about forms of ownership and systems of regulation and governance. At first, even Mrs Thatcher only argued that it was reasonable for private companies to compete to provide public services.

Since the Thatcher era, habits, assumptions and arguments have relentlessly ossified. Part of this is political – the post-Thatcher generation of politicians faced publics that could prefer private to public (in housing, notably), lower taxes to higher ones, and disliked overmighty trade unions. Part of it is economic – the decline of the industrially based, sometimes publicly owned, economy with strong collective bargaining and the growth, in its place, of a globalised and financially led service sector, often offshore, driven by shareholder value and characterised by hyper-rewards for management and low pay and insecurity for many employees. The upshot, nearly 40 years on, is that governments have behaved as though they are historically powerless to control the terms on which public goods are provided. In fact, only government is powerful enough to set those terms.

The collapse of Carillion has exemplified the historic failure of many of these increasingly embedded assumptions. This week’s report from the National Audit Office on “the rationale, costs and benefits” of the private finance initiative offers further and eloquent evidence that this is an arena of public policy in which the imbalance of power and interest have become unsustainable. Major change is now needed. It is a historic political economic necessity for this country.

Whatever the initial claims, PFI schemes as they have evolved have simply not worked. The NAO report shows, with great clarity, how future generations have been landed in some PFI cases with billions in extra costs for little clear public benefit. Part of this can be explained by government’s poor record in contract negotiations, which should caution against any assumption that publicly owned bodies will inevitably do things better. Yet, where once the argument for private capital’s role was that competition would help to provide better public services for less cost, now the reality is that competition can often provide worse for more. What was once trumpeted as a more efficient process for building the roads, railways, hospitals, schools, prisons and public offices that Britain needs, has in many cases become its opposite, bad value for public money. “Our vision is to help the nation spend wisely,” says the NAO. Its report says the nation is spending a lot without knowing if it is good value.

Jeremy Corbyn increasingly speaks for the many who understand that Britain has reached a crossroads in the financing of public services. In his Guardian interview today, the Labour leader trenchantly attacks the “outsourcing racket” and the “dogma of privatisation” and advocates a “public preferred” approach in which outsourcing is restricted to failing services, with all existing PFI contracts reviewed.

Mr Corbyn grasps the seriousness of the issue and the new public mood. This gives him a huge advantage over opponents who remain in denial. It is right to review the distortions that current systems of outsourcing and bidding have created; right also to think again. It is also vital to remake a case for taxation and borrowing that make necessary projects possible without squeezing modest incomes and plunging the public realm into excessive debt. Yet the public sector is likely to always buy things from private firms; it will often use them to build houses, schools and railways. Detailed work is still needed here before Mr Corbyn’s solutions, which risk being dogmatic in their own way, manage to persuade a public that is rightly restless for change.