Can it really be so hard?
Latest news: South London NHS trust declared bankrupt. Unaffordable PFI liabilities blamed.
Setting aside the apportionment of blame (PFI liabilities were presumably one ingredient in a toxic mix), PFI liabilities more widely are being reported as a huge proportion of UK off-balance-sheet public sector debt, and thus a great pillar of the overall debt burden. How has it come to this?
The original rationale for PFI was a good one. Put the risk of cost overruns with the contractor, and it takes away the race-to-the-bottom where the contract goes to whoever can put in the most unrealistically-low bid, and raise it only when the contract is secured. The idea that contracts inevitably go ten or twenty (even 100 in murkier corners) times over budget really shouldn’t be the norm. Indeed, shouldn’t even happen in politically-driven vanity projects like the olympics, but that’s clearly too much to hope.
Trouble is, it became a vehicle for magic money: a manifestation for our times of Mephistopheles’ credit bubble. Public sector commissions new projects, but hides the cost off-balance-sheet. Current incumbents build empires: bask in the glory of shiny new hospital (or whatever). By the time the emperor’s wardrobe malfunction can no longer be hidden, it can be made someone else’s problem. If indeed the idea of payment ever crossed their mind in the first place.
Now, someone tell me what’s wrong with a simple solution: at the same time as a PFI contract is signed, issue a bond to cover the cost over the lifetime of the project? Such a simple act of keeping the liabilities on-balance-sheet could prevent abuse, while retaining the genuinely useful aspect of the PFI concept. Of course the financial wizards won’t like it (they lose a fun and profitable toy), nor will politicians and civil servants deprived of their ability to raid the future without telling the beancounters. So a good outcome all round: just need to rewind that time machine a few years.
 Googling the story of Mephistopheles’ brilliant boom-and-bust based on credit notes for as-yet-undiscovered mineral riches that, when discovered, would rightly be claimed by the Emperor, finds an interesting essay. One that not only tells the story, but claims that this part of the Faust story has been more-or-less systematically dropped since 1945, and so is not widely known. Interesting insight or nutjob conspiracy theory? Maybe both? Here’s the story: read it and judge.