This great free-market experiment is more like a corporate 
welfare scheme

A hospital in Coventry lays bare the deceit of neoliberal logic: 
staff
cuts, ward closures and millions to the financiers

George Monbiot
Tuesday September 4, 2007
The Guardian <http://www.guardian.co.uk/>*

After my column last week, several people wrote to point out 
that the
neoliberal project - which demands a minimal state and maximum 
corporate
freedom - actually relies on constant government support. They 
are, of
course, quite right. The current financial crisis, caused by a 
failure
to regulate financial services properly, is being postponed by
government bail-outs. The US federal reserve has reduced its 
lending
rate to the commercial banks, while the Bundesbank organised a 
€3.5bn
rescue of the lending company IKB. This happens whenever the banks
suffer the consequences of the freedom they demand. But over the 
past
week an even starker example has emerged.

In Britain the split loyalties of the major political parties have
created a hybrid system of public provision. If it left public 
services
intact, the party in power would be roasted by the corporate 
media, but
if it attempted full-scale privatisation, it would be booted out of
office. So the last Conservative government devised a plan that 
would
keep both sides if not exactly happy, then at least totally 
bewildered.
They called it the private finance initiative, or PFI. Corporations
would build and run our schools, hospitals, roads and prisons, 
and rent
them to the state. This, the Tories maintained, would enable 
costs to be
cut, while ensuring that public services remained free of charge.

At first Labour opposed this scheme. Alistair Darling warned in
opposition that "apparent savings now could be countered by the
formidable commitment on revenue expenditure in years to come". 
But as
the 1997 election approached, Labour sought to prove that it was 
more
sympathetic to business than the Tories were. Two months after 
the party
took office, the health secretary, Alan Milburn, announced that 
"when
there is a limited amount of public-sector capital available, as 
there
is, it's PFI or bust". From then on, the only money the NHS 
could rely
on for capital projects belonged to the private sector.

The problem was that much of what the NHS wanted to do was not
attractive to private financiers. In Coventry, for example, it 
had been
planning to refurbish its two hospitals at a cost of £30m. But its
analysts realised that business would not be interested. The 
scheme was
too small, and there was no scope for the financial innovation that
could produce serious profits. As a confidential report by the 
local
health authority showed in 1998, the health service redesigned its
scheme to make it more attractive to private capital. Instead of
refurbishing the two existing hospitals, it would ask private 
business
to knock them down and build a new one - the University 
hospital. This
would cost not £30m but £174m. The health experts who wrote the
confidential report predicted that in order to find this money, the
hospital trust would have to cut both beds and services. They 
have just
been proved right.

Did I say £174m? I beg your pardon. By January 2002 the price 
had risen
to £290m. A month later it reached £311m. By the end of that 
year it had
grown to £330m. In 2003 it was estimated at £370m. In March 
2007, the
Birmingham Post reported that the final cost was £410m. This 
year the
hospital trust must find £56m, covering repayments and service 
fees, to
hand to the private consortium. The annual cost will rise in 
line with
the retail price index for 30 years.

It is now pretty obvious that this fee is unpayable, if the 
hospital is
to maintain a proper standard of care. Over the past few days the
hospital trust has announced a £30m hole in its budget. Around 
£10m of
the necessary cuts could be found by making staff redundant: it 
will
lose perhaps 200 people, possibly 375. It will also rely on 
"revenue
generating activities". These include charging people £3 for 
dropping
their sick relatives outside the hospital, and £10 for parking 
there,
while cancelling the free parking scheme for disabled people. As 
the new
hospital is on the edge of the city (against the wishes of 160,000
people who signed the Socialist party's petition to have it 
built in the
centre), which means that it is hard to reach without a car, 
this is an
effective way of raising money. But it casts doubt on the 
government's
claim that the NHS remains free at the point of use.

The hospital trust's press officer told me that this 
cost-cutting is a
unique event: "We have always balanced our books up to this 
year." But
in 2005 - the year in which the PFI payments began - a leaked memo
revealed that the trust was anticipating a deficit of £13m by 
the end of
the financial year, and "drastic measures" were required to plug 
the
gap. These included the closure of one ward, the removal of 
eight beds
from another, limiting the opening hours of the surgical 
assessment unit
and the "rationalisation of certain posts": which meant, 
eventually,
cutting 116 jobs.

In 2006 the local newspaper reported a shortfall of £29m. This 
was met
partly by freezing the recruitment of district nurses. In 
January this
year, the hospital announced that it was closing another ward, 
just six
months after it had opened. Yet another ward - where people with 
acute
conditions such as pneumonia and strokes were treated - was 
closed in
June. The impact of these cuts is already being felt: three 
months ago
the new hospital found itself in the bottom 10 in the national 
league
table for waiting times. Where will the money come from over the 
rest of
the 30-year PFI contract?

There is one set of costs the hospital cannot cut: the money it 
must pay
every year to the private financiers. In September 1997 the 
government
declared that these payments would be legally guaranteed: beds, 
doctors,
nurses and managers could be sacrificed, but not the annual 
donation to
the Fat Cats Protection League. The great free market experiment 
looks
more like a corporate welfare scheme.

The government justifies all this by claiming that privately 
financed
schemes are cheaper than comparable public schemes. Allyson Pollock
showed on these pages in April that the data required to support 
this
claim does not exist, or if it does the government refuses to 
release
it. But as the Coventry scheme shows, there's an even bigger 
deception
at work. The government compares the cost of building the 
hospital under
PFI with the imagined cost of building it with public money. But it
would not have been built with public money. If public funds had 
been
available, the two existing hospitals would have been 
refurbished, at
around one 13th of the cost.

It was Gordon Brown who insisted that PFI became the principal 
means of
funding capital projects in the United Kingdom. By deferring 
costs into
the future, as Darling warned, he was able to sustain his 
reputation as
an iron chancellor, while suppressing the constant baying of the
corporate press. The BBC predicted that in his speech yesterday 
Brown
would announce a reduction in the corporation's involvement in the
public sector. It was about the only subject he did not discuss. 
For all
his talk of "listening and engaging", corporate power still 
seems to be
forbidden territory.

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