THE Labour government’s economic advisory bodies are “almost entirely dominated by financial industry lobbyists” – and the UK public could be footing the bill for tens of billions in private cash after the current parliament, it has been warned.
Mick McAteer, the founder and co-director of The Financial Inclusion Centre and former Financial Conduct Authority board member, said that in 30 years as a campaigner he had “never, never seen the financial sector – the big insurance industries, the big asset managers, the private equity funds and the banks – having so much influence over government policy”.
“The same companies that are going to really benefit from this new PFI regime are the same people who've been advising Labour on it,” he warned.
McAteer pointed to the British Infrastructure Council – which Labour first convened in late 2023 and said includes “figures from major global financial institutions” including BlackRock, M&G, and Lloyds – and the National Wealth Fund task force – which the UK Government has said includes “Barclays CEO C S Venkatakrishnan, Aviva CEO Dame Amanda Blanc, and large institutional investors”.
McAteer’s words of caution came as he spoke to The National about Private Finance Initiatives (PFIs) and their potential return, at least in some form, under the new Keir Starmer-led government.
A former chair of the European Commission’s Financial Services User Group and anti-poverty charity Z2K, McAteer said Labour were using “exactly the same arguments” as they had in the 1990s, specifically around the need to turn to private investment “to keep the costs off the state balance sheet”.
He went on: “That’ll be what policy geeks like me call ‘socialising the risk and privatising the rewards’. Heads, they win, tails, we lose.
“If the investment pays off, they keep the returns. If the investment doesn't pay off, the taxpayer picks up the bill.
“By the end of this parliament, and certainly the next parliament, the expectation is it will be tens and tens of billions of pounds of private finance being used.”
McAteer said that by using private investment instead of options such as progressive taxes or quantitative easing-style interventions the government was “deliberately using a more expensive form of finance to build infrastructure”.
He explained: “The government can borrow at, say, whatever the gilt rate is – which is basically the cost of government borrowing.
“If you're a big investor, then you'll want to get a return on your investment that's about three or four percentage points above what the gilt rate is at any given time.
“So government borrowing is always going to be about three to four per cent cheaper than private finance.”
“It's just wrong to say that the state can't afford to commit more public investment. That is simply not the case,” McAteer added. “It is a political choice to just adopt the previous government's fiscal rules.”
As The National has reported through our PFI series, previous examples of the scheme have led to bills far higher than the initial capital investment.
One report from the Institute for Public Policy Research (IPPR) in 2018 found that the NHS was set to pay a bill of £80 billion in return for just £13bn of initial investment.
That same year, a report from the National Audit Office (NAO) said that in return for £59.4bn of private capital, public bodies would pay out “an average of £7.7bn a year over the next 25 years” for a total of nearly £200bn – without factoring in payments already made.
Liz Emerson, the chief executive of the Intergenerational Foundation – a charity which campaigns for fairness across age groups, cautioned that new PFI schemes could again lead to sky-high bills for young people down the line.
She told The National: “We are deeply concerned that a ‘government of service’ is not going to provide taxpayers with value for money and the transparency required when spending their money – and younger and future generations of taxpayers' money.
“On intergenerational fairness grounds, the current government owes it to younger taxpayers to make sure they're not going to be left with the bill.”
Dr Salman Ahmad, a lecturer at Aston University's Business School who has extensively researched PFIs, said that previous UK governments had been “successful in selling the idea [of PFIs] on the basis of promises, as if it was a magic wand which would turn complex infrastructure contracts into value for money public services”.
He argued that “one could say that up until the financial crisis of 2007-08, it was successful ex-ante, but ex-post, the outcomes have not been convincing”.
Ahmad said that if Labour were to bring back PFIs in some form, they should ensure transparency.
“If government requires to use PFI for projects which are necessary but could not be delivered because of public finance not being available, this fact should be admitted and publicly disclosed,” he said. “Then no one would evaluate PFI projects on basis of value for money.
“However, long-term affordability implications must be taken into account, like commercial banks and how they provide mortgage re-payment plans upfront for their clients.”
Ahmad said that PFI should be considered for “only the most needed infrastructure”, and that, while it would be impossible to create a standardised risk register due to the variation in PFI schemes: “Focus should be on identifying and managing key risks, rather than transferring excessive risks to the private sector.”
Jim Cuthbert, who was chief statistician at the Scotland Office until 1997, has also laid out how PFIs should change if the new Labour government is to take them forward in any form. You can read Cuthbert’s article here.
