The Starmer government, desperate to keep its public borrowing in check, is bringing back (in the words of a senior City of London banker) a “fraud on the people.”
In mid-November, the Confederation of British Industry (CBI), an influential business lobbying group, announced it was going to advise the UK government on how it could use private investment to build new schools, hospitals, prisons and transports projects.
A week later, the UK’s Health Secretary Wes Streeting revealed that a new generation of local NHS clinics in England will be built using private money. As the FT reported, the move “echoes the controversial Private Finance Initiative (PFI) policy” that was scrapped in 2018 after being judged poor value for money by the public spending watchdog.
Buy Now, Pay Later
First launched by John Major’s Conservative government in the mid-90s and then massively expanded by the Blair government thereafter, PFI — and its later incarnation, PF2 — were essentially a buy now, pay later scheme for government — with one added advantage: they allowed the government to keep many of its current liabilities off-balance-sheet.
Under PFI, instead of borrowing to build, the government began contracting with private sector firms to finance, design, build and maintain public assets, including hospitals, schools, roads, prisons, street lighting and military equipment. The contracts typically run for 25–30 years, and many of them are coming to an end soon.
The scheme was designed by and for executives from big banks, financial firms and building contractors that appeared on secondment to the government’s PFI Taskforce. The interest rates and other charges levied on the debt, many of them still outstanding, were crippling, as I detailed for WOLF STREET in 2018:
The interest rate on PFI deals can be as much as 2 to 3.75 percentage points higher than the cost of government borrowing. On some projects, returns to investors can be more than 25% a year.
Even without entering into any new PFI-type deals, the government has already coughed up £110 billion in fees and interest and will have to pay investors and companies another £199 billion between April 2017 until the 2040s for existing deals, which Hammond has already said will be honored. That works out at a total outlay of around £310 billion for 700 projects estimated to be worth a measly £60 billion.
According to a 2022 report by The New Statesman, NHS trusts still had around £50 billion left to pay on their PFI debt (that number has apparently shrunk to £44 billion today). Some NHS trusts are spending more servicing their PFI debts than on medicines for patients:
Sherwood Forest Hospitals NHS Foundation Trust spent more than double on its PFI repayments (£45.8m) than on drugs costs (drugs inventory consumed and purchase of non-inventory drugs, which amounted to £22.6m). That works out as more than £1 in every £8 of income it received from patient care activities, finance income and other operating income being spent on paying off PFI debt.
It was followed by St Helens And Knowsley Teaching Hospitals NHS Trust (which spent 12.1 per cent of its income on PFI, more than double its drug spend), University Hospitals Coventry And Warwickshire NHS Trust (11.7 per cent of income on PFI, 1.4 times what it spent on drugs), and North West Anglia NHS Foundation Trust (11.2 per cent, 1.2 times what it spent on drugs).
A further 21 trusts also spent more on paying back their PFI debt than on drugs, according to the accounting data…
Government figures from 2018 show the value of the initial PFI investments in the NHS was just £12.8bn, but the Department for Health and Social Care will have spent a total £80.7bn once they are all paid off (this figure includes services such as facilities management supplied by the PFI providers).
So, who benefits from these financing arrangements (because one thing is clear: it is not UK taxpayers)?. An investigation by NHS campaign group Every Doctor revealed the complex layers of ownership that lay behind some of these opaque deals:
To uncover who ultimately owns each PFI project, we had to follow a Matryoshka-doll trail of holding companies. These intricate corporate structures reflect the way the projects were set up, with construction firms, facilities managers and banks each taking a stake through layered financing vehicles.
The convoluted ownership trail also makes it hard to see exactly who profits from the projects. To add to the confusion, stakes in PFI contracts are frequently sold on, meaning the firms now operating them are often not the same ones that originally built them.
Take, for example, Norfolk and Norwich University Hospital, one of the largest in the UK and one of the earliest PFI projects. It opened in 2001 and then was extended in 2004, again using PFI. Norfolk and Norwich University Hospitals NHS Foundation Trust is still paying a company called Octagon Healthcare Holdings tens of millions of pounds a year for operating the hospital.
But Octagon doesn’t ultimately own the contract, two companies called Semperian and Innisfree Group do. The latter is an investment fund based in Jersey, a tax haven, and the former is owned by South African-born property investor David Metter.
By the time the contract comes to an end in 2037, the NHS expects to have paid Octagon a further £1.2bn. That is a vast overpayment on the £229m it cost Octagon to build the hospital.
Arguably the most insane part of the PFI story is that none of it was necessary. As Richard Murphy pointed out in a recent podcast, “Government issues its own currency, so it can always fund investments (in that currency), and what’s more it can always fund investment more cheaply than the private sector.”
The private sector always has to pay a premium for the risks associated with private sector lending, and the government does not. In that case, the claim that there was first of all no money was just political theatre. The Government can always create the money it needs to fund any project that it thinks is worthwhile.
And the claim that it was cheaper for the private sector to fund these activities than for the State to do so was very obviously completely and utterly wrong. PFI was therefore all about ideology, false accounting, political shenanigans, helping the private sector, but not for one moment was it about necessity.
“A Fraud on the People”
Even Sir Howard Davies, former chairman of the Royal Bank of Scotland (RBS), one of the biggest beneficiaries of PFI, admitted as much on BBC1’s Question Time in 2018, describing PFI as “a fraud on the people” — a fraud that the Starmer government now wants to repeat:
The government can borrow money more cheaply than anyone else, and therefore if you’re going to hand over the total provision of a hospital to someone whose borrowing costs are going to be higher than yours, what is the advantage of doing that? Unless you’re absolutely certain they’re going to be much more efficient. And if you think they’re going to be efficient, why not give them a fixed price contract? Why hand over the whole thing?
I think PFI has been a fraud, and there has been a very interesting report by the National Audit Office today which shows just how much we have paid for the privilege of the Private Finance Initiative.
It's no surpise the UK has anemic growth, low productivity, declining real wages and massive debt. We have a "cuckoo in the nest" banking sector that admits to actively defrauding the public with the connivance of govt.
— Ian Fraser (@Ian_Fraser) January 19, 2018
Davies said these words after the collapse of 200-year old UK infrastructure group Carillion, whose outsized role in delivering public services had earned it the moniker “the company that runs Britain.” The firm’s sudden demise exposed PFI as a form of giant ponzi scheme, while also laying bare the abysmal quality of auditing by the sharply conflicted Big Four accountancy firms.
There are also serious questions being asked about the quality of the building work undertaken by the companies contracted for the PFI schemes as well as concerns about what will happen to the buildings when the concessions end.
A report last year from the Association of Infrastructure Investors in Public Private Partnerships (AIIP), chaired by the Labour peer and former government John Hutton, flagged the risk of “serious disruption” as these deals come to an end, amid what it called “mistrust between the parties to some PFI contracts”.
Much of that distrust revolves around who is ultimately responsible for costly repairs and replacements as the contracts run their course. A 2020 report by the National Audit Office warned that unscrupulous private sector providers may seek to minimise maintenance in order to maximise their profits, with potentially serious consequences.
It is clear who Hutton is batting for, writes John Lister for the Lowdown: the private sector. Hutton signed off 13 NHS PFI projects as a Labour health minister in 2002. After leaving politics over a decade ago, he has kept himself busy in an array of private sector roles, including at Pearson Engineering, a subsidiary of state-owned Israeli weapons manufacturer Rafael.
Too Toxic to Touch
By 2018, with the collapse of Carillion, PFI had become too toxic to touch. Labour, then the main party in opposition and under the leadership of Keir Starmer’s former boss, Jeremy Corbyn, whom Starmer stabbed in the back, responded to the scandal by pledging in its manifesto that it wouldn’t sign up to any more PFI contracts. The Conservative government stole that idea.
“I have never signed off a PFI contract as chancellor and I can confirm today that I never will,” said UK Chancellor of Exchequer Philip Hammond during his 2018 budget address. “I can announce that the government will abolish the use of PFI and PF2 for future projects.”
At the same time, the Conservative government rejected Labour’s much more dangerous proposal to review all existing PFI contracts and bring the worst offenders back in house. That never happened. Instead, Starmer’s government is bringing back PFI.
As NC regular Froghole pointed out in the comments section to a previous article, the likes of Streeting, Hutton and current healthcare advisor Alan Milburn “know full well PFI is a pig (though they are paid to think otherwise), but they have now created something called ‘hybrid PFI’, which is the same pig but with a fresh application of lipstick.”
For her part, “Reeves needs to move spending off balance sheet in order to moderate the quantum of tax rises and spending cuts in the near/medium term, so that Labour’s ramshackle coalition can be kept together. They need to do this because they fear another gilts strike.”
The new PFI deals, while supposedly more narrowly conceived than their predecessors, will saddle the NHS with even more debt it will struggle to pay, taking away even more money for patient care. That, in turn, will open up yet more opportunities for the government to outsource even more NHS services to the private sector.
And that, as we warned at the beginning of Starmer’s term, is precisely what this government, and all preceding governments since the 1980s, have sought to achieve. As campaigner Dr Bob Gill says in John Pilger’s 2019 documentary The Dirty War on the NHS, the NHS has been repurposed from a public service to something for profit extraction:
And all the changes we have seen have just been about liberating up these potential assets for the corporate raiders to take them over.
This is why healthcare lobbyists and executives were heavily involved in the drafting of the government’s recently published ten-year plan for the NHS. They apparently included UnitedHealth vice president Michael Macdonnell, a former Blair advisor whose job at United is to “build out new growth areas…, including new markets” for the US healthcare giant.
After decades of corrosive influence, the US’ deadly model of corporate healthcare is making major inroads in the UK. As an American doctor working for the NHS says in the video below, “they want to take away your healthcare and sell it back to you.”
🚨"They want to take away your healthcare and sell it back to you"
American doctor in the NHS raises alarm about underfunding and privatisation of the NHS.
Share if you support our NHS. https://t.co/vQfliuAkDk pic.twitter.com/h9mj2qJb1l
— We Own It (@We_OwnIt) December 4, 2025
Around 40 (out of 403) Labour MPs have signed a letter warning the government that it would be “reneging” on its manifesto if it went ahead with proposals to use PFI to fund NHS facilities. It should be ten times that.
The Labour Party, which created the NHS, is once again hastening its demise, as it has done since Blair entered 10 Downing Street on May Day (how appropriate), 1997. And it is one of its greatest betrayals, for if there is one thing that is bankrupting US households, it is the extortionate cost of healthcare.
Lastly, here’s a clip of former Tory MP Rory Strewart claiming in an interview with Chancellor of the Exchequer Rachel Reeves that the Global Financial Crisis was somehow the fault of Gordon Brown’s public borrowing to fund the NHS. Depressingly, Reeves offers little push back, with not even a passing mention of the real causes, which readers of this site know all too well.
Rory Stewart nonchalantly claiming that the GLOBAL financial crisis is somehow the fault of Gordon Brown's public borrowing to fund the NHS.
The state of macro punditry in this country. https://t.co/N9Ud1ZzLY2— Daniela Gabor (@DanielaGabor) June 6, 2024
