Sometimes a single event can destroy not one dogma but two. So it may prove with the collapse of Carillion, the one-time construction company that mushroomed into a behemoth that did everything from paving motorways to managing operating theatres and ladling out school dinners. Most attention has focused on the article of faith that fuelled its rise and rise, and which has been shredded by its fall – the axiom that dominated government thinking for three decades, and which can be distilled into four words: private good, public bad.
It was that logic that, in part, underpinned the private finance initiatives (PFIs), which saw previously public functions outsourced to private companies. Its core credo held that when the government tries to run things, the result is tatty incompetence. Think British Leyland or British Rail. Better to draft in the sharp suits and high gloss of the business world.
That myth has been torn apart in recent years, first by the crash of 2008 when the bankers, the supposed masters of the universe, were exposed as mortal, if not useless and greedy. The proof has kept on coming: witness the army being drafted in to provide security at the London Olympics after the corporate provider, G4S, confessed they couldn’t cope.
The public mood on this question has shifted over the course of a generation. Once British Rail – its delays, the state of its sandwiches – was the butt of countless sitcom gags. Today, it’s the likes of Southern Rail that are despised, while more travellers would prefer the east coast mainline to be run by the government than by Virgin. Polls on the renationalisation of the railways, the Royal Mail, water and energy, confirm that if a job really needs doing, these days we’d rather the government did it.
But Carillion’s fate is a reminder of a second dogma – one that, like the claimed superiority of the private sector, was both integral to the PFI idea, and which now stands to be badly damaged by the company’s demise by its demise. It is the notion that government borrowing is bad, a sin of public policy to be avoided at almost all costs.
It was this basic assumption that led Tony Blair and Gordon Brown to pick up the instrument of PFI, forged by John Major, and run with it. They were haunted by the hoary accusation that Labour was congenitally profligate with the public finances, that it suffered from a fiscal incontinence that made it tax, borrow and spend indiscriminately. Brown arrived at the exchequer having committed Labour for two years to the spending limits set by the outgoing Tories. Prudence was the word of the hour, borrowing rendered taboo.
So when it came to repairing the crumbling public infrastructure New Labour inherited in 1997 – the rundown hospitals, the leaking school roofs – it believed it could not splash the cash. It had to find another way. PFI seemed like a solution: you’d pay private companies to borrow the money instead, paying them back decades into the future. No big dent in the public balance sheet now, no massive upfront cost.
All this was deemed politically necessary in order to swerve around the forbidden zone of debt and deficit. Plenty on the centre-left, including the Guardian, counselled against this PFI mania. I backed Ken Livingstone for London mayor in 2000 partly because of his stance against a public-private partnership for the tube. But New Labour’s wariness of debt cannot be dismissed.
Proof of the issue’s potency came again in the past decade, as David Cameron and George Osborne won and held power chiefly by declaring Labour unfit for government because the deficit had increased on its watch. It was the Tories’ success in searing this argument into the public consciousness – “Labour crashed the car”; “a country must live within its means”; “if we don’t balance the books, Britain will be the next Greece” – that cleared the ground for austerity.
That policy was as economically illiterate as it was morally unsustainable, insisting that the best way to breathe life into an economy gasping for air was to strangle it tighter. It failed to understand the basic, if counterintuitive, Keynesian truth that it’s in the tough times that you need to spend to kickstart the economy – in the sound expectation that restored growth will bring in the revenues to pay back the money you’ve borrowed. But that essential economic logic could not break through the political fog generated by Cameron and Osborne, aided by decades of rhetoric casting public borrowing as a moral failing.
Perhaps the Carillion failure will at last shatter that taboo. With impeccable timing, the National Audit Office this week estimated that taxpayers would end up paying £200bn in charges for projects funded via PFI over the next 25 years – meaning we’ll pay 40% more than if the Treasury had stumped up the cash directly. The evidence could not be clearer. In their desperation to avoid the appearance of borrowing, governments have ended up costing us dearly.
In fairness to Brown and Blair, even Keynes disapproved of excess borrowing when times are good (as they were in the early New Labour years), and interest rates weren’t as low then as they are now. But today, as for the last eight years, there’s no such excuse. UK government borrowing has cost, and continues to cost, close to zero.
All this should open up new political space. True, you can’t run huge budget deficits for ever, but Labour’s current leaders can propose borrowing on a huge scale without the timidity that cramped their predecessors, confident that they need only point to the likes of Carillion to illustrate what happens when governments try to skirt around their inevitable need to spend money on the public realm. It’s not much of a consolation, but perhaps this massive corporate failure will help destroy the failed thinking that paved the way to disaster.
