The real cost of PPP’s revealed

Written By: - Date published: 5:13 pm, August 9th, 2011 - 40 comments
Categories: capitalism, Economy, prisons, schools - Tags:

A report in the Financial Times, that hotbed of socialism, says that PFI’s as PPP’s are known in Britain cost an extra 20 billion pounds in “extra borrowing costs” over the 53 billion pounds of the projects’ actual cost. Not only that, 4 billion pounds will go to consultants.

The extra interest being paid on PFI contracts over the cost if the government itself had borrowed the money for conventional procurement was “a shocking amount of money”, said Richard Bacon, a Conservative member of the public accounts committee, parliament’s spending watchdog.  “It is clear that PFI has spawned an entire industry of advisers who have done extremely well out of it. Fifteen years ago, you never heard someone say: ‘I am a PFI consultant, or PFI lawyer.’ Now they are almost two-a-penny.”

Enough said. Another dumb idea from those who gave us collateralised debt instruments,  self-correcting markets and “there is no alternative”.

40 comments on “The real cost of PPP’s revealed”

  1. TightyRighty 1

    So your PFI Lawyer or Consultants having jobs created for them by government spending, bad thing or good thing?

    If it’s a bad thing, how about tax lawyers helping their clients through our tiered tax system? and the lost tax receipts for the government as a result of that, and the compliance costs associated with the tiered tax system?

    same problem if you apply the same model and criticisms

    • Um I thought that any RWNJ teabagger sort would be demanding that lawyers and consultants rorting the system in such an egregious manner had their heads put on spikes.
      How can this possibly be a good thing.  Paying way more money in interest to private enterprise when the good old state could do the job much more cheaply.

    • Lanthanide 1.2

      Or, how about the government doesn’t bother with the PPP and uses that extra money to build hospitals or schools instead of pays lawyers?

      The whole point of this is that money being given to the lawyers is a less productive use than spending the money somewhere else. If this were not the case, the government budget would have a line item saying “give money to lawyers” that was deliberately bigger than the education and health system budgets…

      You’ve presented a false dichotomy: It’s not a case of “is it a bad thing for the government to hire lawyers or a good thing”. It’s a case of “is it better to spend money on lawyers or to spend that money on the [xxx] system”.

    • MrSmith 1.3

      Not really TightyRighty. Because we don’t have one and already have the other. What your basically saying Tighty is you have crabs already but if you had syphilis as well you would be better off.

    • mik e 1.4

      Tighty almighty then you shouldn’t have any thing to complain about if you aren’t paying the full amount .you think you would be happy with your lot.We as a family pay very high taxes probably more than you do by the sound of it, if i need more money i just go out and earn more, i’m quiet happy to pay tax it helps my country, if every body took your attitude we would be like Greece on a slippery slope to the bottom,The country would have to be bailed out!

  2. vto 2

    The problem is interest, or usury. The sooner the way that money is created is changed the better. The current system is simply a rort. Tell your bank manager (whether you are a government or an individual person).


  3. queenstfarmer 3

    What’s your point? It’s horses for courses on whether a PPP is sensible in the circumstances. The UK is well known for a number of disastrous infrastructure projects, their mega-IT system debacle being a prime example.

    As one D. Cunliffe said: “The project scale must be right and the PPP benefits must outweigh any increase in cost of capital.”

    Sounds about right to me.

    • Lanthanide 3.1

      “As one D. Cunliffe said: “The project scale must be right and the PPP benefits must outweigh any increase in cost of capital.”

      Sounds about right to me.”

      Cunliffe is correct. However National don’t care if the benefits don’t outweigh the increased cost of capital, they’ll do it anyway.

      • queenstfarmer 3.1.1

        National don’t care if the benefits don’t outweigh the increased cost of capital, they’ll do it anyway.

        What nonsense Lanth. E.g. is every new road project a PPP? No. Some are, e.g. the Waterview Connection, and that was after a lengthy review & report, which Labour supported. Most others aren’t.

        • MrSmith

          Queenst, your defending privatizing things that are natural monopolies and should be government owned. Next you will be arguing we let private companies build their own roads with state backing, ‘Oh you already are’ and before we know it you will be suggesting we could then sell half the roads back to Mum&Dad investors. 

          • queenstfarmer

            Hmm, no I was talking about PPPs, not privatising natural monopolies, or selling roads. People do like to jump to conclusions around here.

            • Colonial Viper

              Not every new road is a PPP because some of Joyce’s new roads are so shitty and uneconomic that the private sector is happy to let the tax payer foot the entire bill.

              You really are a moron.

        • mik e

          Qstf.Yeah right was that Nationals inquiry into building new schools using ppp that cost $6 million over five years to save a very doubtful $800,000

    • About Right is right, another merchant bankster living in Herne Bay bringing a friendly PPP to project near you.

    • As one D. Cunliffe said: “The project scale must be right and the PPP benefits must outweigh any increase in cost of capital.”

      Perfectly appropriate.  This comment has the benefit of stopping RWNJs saying “Labour is being doctrinaire about this issue” while at the same time ruling out any but the most spectacular project where there are real benefits.

      Do you disagree QSF? 

      • queenstfarmer 3.3.1

        I don’t know how you’d define “spectacular”, but I agree that Labour isn’t being doctrinaire on this (that’s why I quoted Cunliffe’s comment). In fact. with the Waterview Connection I think it was Michael Cullen who first put the possibility of a PPP on the table.

        Which is why my original question on this post remains: What’s the author’s point? He’s bizarrely attacking the whole concept as a “dumb idea”. Now that’s doctrinaire.

        • Colonial Viper

          It loses money for the nation. How much dumber does an idea have to get?

          • queenstfarmer

            Perfect example of your blind ideology. You’re attacking a concept, not a specific proposal. It’s like saying “loans lose money”. What type of loan, what purpose, what terms, etc?

            Fortunately, we have smart people on all sides of the political spectrum who actually consider facts instead of ideology.

            • Colonial Viper

              Yeah, my political economics is ideological. You must be used to ideology though, because the political Right Wing is the most ideological by far.

              And its telling that you think that some ‘specific proposals’ for slavery, some specific proposals for biological warfare, some specific proposals for genocide would be acceptable. You’re an amoral loser.

              • queenstfarmer

                It’s telling that your ideology is that only white, blue-eyed babies should be allowed to live.*

                (*You said that right next to where I talked about slavery, biological warfare and genocide)

                • Colonial Viper

                  You heard the ideological concept about “not killing”?

                  Apparently you would like to see the specific proposals around “not killing” before endorsing it.

                  Like I said you are an amoral loser.

                  • queenstfarmer

                    Yes that’s right CV. I support David Cunliffe and Michael Cullen’s views on weighing PPP benefits on roading projects. According to CV logic, we therefore support genocide, slavery and biological warfare.

                    • Jum


                      Since you support a coalition government that lies, misleads and favours those who don’t need it by giving poorer people’s money to richer people so rich people can buy poor people’s assets and then financially flog poor people further, if they protest, by removing or seriously degrading all socially responsible support systems I cannot believe or trust in anything you say.

        • ghostwhowalksnz

          That proposal , which came out of Transit NZ, was for separate lanes in some areas for paying drivers, didnt make any sense then or now for practical reasons and is no longer in the mix.

        • MrSmith

          I think the author is trying to point out that PPP’s are the thin end of the wedge, a rip off pure and simple, they are great examples of people living beyond their means, buy now pay three time as much later.
          PPP’s are the wolf in sheep’s clothing. Now some will argue the private sector can do things cheaper, fine put the building of these things out for contract and employ the private sector to build our roads/prisions, this already happens, but never go into partnership, keep ownership and control always and once finished the state can then oversea the running and maintenance. If the government decides it must build something but can’t afford it, then it should borrow the money, as know-one can borrow money as cheaply as the government, so going into partnership with someone that will most likely have to borrow there own money at a higher rate is a no brainer.
          PPP’s are also a way driving wages down and keeping them down, as has happened in private prisons in the UK they pay there staff less, around 20% less than in the public sector prisons, there’s your profit! coming out of the peoples pockets again, also here in NZ we will be seeing these profits from private prisons going off shore.
          The right are always trying to sell us something we don’t need, that ends up costing us more in the long run, luckily for us others have tried it and it has mostly been a failure, so why would we even go their.
          Also on the prisons: these people are our people and we are responsible for there well-being and we are also responsible for them being in prison, it’s time we owned up to the fact we are failing these people, they are our societies responsibility, so should be in the governments care, not some company from who knows where.

          • Jum

            Mr Smith,

            Totally agree, and the silliest result out of this PPP nonsense is that the government partner either spends more money overseeing every step of the private part of the process or they don’t which means excesses by private business highly probable and rorting of the public purse.

    • mik e 3.4

      Funny its the Tories that are dumping them because they are to expensive

  4. Jenny Michie 4

    Conservative Mayor of London Boris Johnson – after being thoroughly screwed by PPPs said, and I’m paraphrasing slightly; “other countries call them PPPs, here we call it looting”‘

    • Very, very relevant comment Jenny.

    • Jum 4.2

      Jenny, Given what is happening in London at present, with actual looters being arrested for selling items worth a few dollars to a few thousand and the PPP looters stealing millions and being knighted, like they do in New Zealand, makes you wonder about The Wizard of Oz and who is behind the curtain pulling the strings.

  5. Jenny Michie 5

    Also the basic premise of PPPs is flawed because private consortiams can never borrow money more cheaply than governemnt. The people who benefit most are the lawyers who get to negotiate 30 year contacts.

    The reason PPPs came into favour in the first place was pure accounting smole and mirrors. Formerly PPPs were not counted as a debt on the government’s books. Our very own Len Cook changed all that when he was working in the UK under Blair.

    People also liked PPPs because the contrustruction came in on time but any government contract can achieve the same effect – they just used turn key contracts with a 25% penalty clause for lateness – but it adds to the overall cost of course.

    • RedLogix 5.1

      The other flawed form of privatisation are DBO’s (Design, Build, Operate) contracts, usually where some private consortium builds some public infrastructure (eg a sewerage plant) and then makes it’s profit operating the plant for 15-30 years, after which the asset is restored to public ownership.

      The usual downside of course is that the private owner usually finds all sorts of creative ways to minimise maintenance and upgrades, carefully timed to ensure the plant is handed over to the public authority in the most run-down state possible.

  6. I wonder how many Plasma TVs you would get for the average PPP looting.

  7. Jum 7

    ( International pressures to privatise
    For Privatisation by Stealth conference 16 March 2008
    Bill Rosenberg )

  8. Jum 8

    3 possibilities for this illegal behaviour by this government:

    1. Gerry Brownlee playing king because he has no one to stop him, and/or
    2. The council intention to sell off Local Government assets which belong to the people of Christchurch, and/or
    3. Allow foreign and/or ex-pat/profit-driven business interests to take control of the city in a public/private partnership which means public cost/private profit as it always has and always will. Fletchers will be fully involved.

    No 3 would certainly require a lot of spin.

  9. Afewknowthetruth 9

    I see that queenstreetfarmer demonstrates his ignorance of fiat money and the role of loans in the creation of money out of thin air.

    Loans [with interest] are simply a component in a complex system of transferring wealth from those do not have it to those who do. And by and large loans are used facilitate the looting and polluting of the planet we live on.

    The propping up of ‘the markets’ that we have recently witnessed permits the looting and polluting by those who already have far too much to continue a little longer, and adds to the environmental debt (overshoot) the next generation will have to contend with.

  10. Tom Gould 10

    This will get no coverage in the local media, even the local financial media. Mind, these are the same kids who told us the world was watching the NZ markets open on Monday morning, and that we are the first markets in the world to open. And the same kids who ‘look through’ the mega-rorts in Christchurch. Gotta be positive, right? Anything less would be unpatriotic, right?

  11. randal 11

    of course PPP’s are going to cost more. How the hell can the capitalists make any moeny if they dont?

  12. Jum 12

    yeah – John Key needs an escape route when his asset selloff dreams turn to custard for New Zealanders.

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